Real Estate Investment: Determining if you can afford a property

Guys, I get that many people are in the dark about whether they can afford to purchase a property or not.  First of all, it would be wise to determine 2 things:

1. Downpayment - Typically, the downpayment is 15-20% of the total contract price (total list price + VAT + other fees).  Usually, if you can pay cash for the d/p, you get a discount (varies among developers).  If not, developers offer terms as long as 30 months for 0% interest (such as in the case of 2 Torre Lorenzo).  If you can afford to pay more than 20%, I'm sure the developer would offer no objections.  This is your first hurdle.  If you can get over this, then it's time to look at...
2. Balance - Assuming you paid the 20% d/p, it's now time to start paying for the balance.  If you don't mind paying interest, find out the longest term the developer will agree to.  Then, shop around for bank financing.  Let's talk about the monthly mortgage payment you will be making.

• Assuming the 80% balance is 1M, and you got a term of 20 years at 8% fixed-rate interest.  That means you will be paying the bank P8,364 monthly for 240 months.
• A good precaution when deciding if you can afford a property is to determine how much you can afford to pay monthly for the loan amortization.  I would say if you can pay the monthly amount with 40% of your net monthly income, then you have enough left over in case of emergencies, and your budget won't be stretched too tightly.

It's safe to say that when buying property for investments or for your own use, shop around for the best rates that you can get, and don't go overboard with your budget.  It would be a total waste if you started paying for something then default on the payments, resulting in the loss of the property due to foreclosure.

If you would like to play around with mortgage amounts to see if you can afford a certain property investment, check out this amortization calculator.

Talk soon,

jon