(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)
Question: I’m 45 years old and a single mom with a 9-year-old son. We’ve been living with my parents for many years now and I think it’s about time I buy my own house. Am I too old to do this? I don’t have enough cash to buy a house so I will take out a housing loan. Do you think I will still be qualified given my age? And is this a good time given the current financial crisis? – Nina
Answer: Buying a house is a good investment, especially if you will make it your family home. Not only will it give you a sense of security, it will also be an asset you can pass on to your son in the future. Real estate prices may also go up especially if the location is good.
“In general, purchasing a home to live in makes financial sense unless rents are very low indeed, so most people choose to have real estate in their portfolio of assets,” write the authors of the book The Citibank Guide to Building Personal Wealth.
For banks, as long as you have a stable job with a reliable income stream coming in the years ahead (your capacity to pay, in other words), you may be considered for a housing loan. More so if you score favorably on the other Cs of credit: client history and collateral.
Before granting a loan application, banks check if the applicant has been responsible in paying bills on time. This includes payment history for credit cards as well as for other consumer loans such as an auto loan. (This is why it is important to keep your credit history blemish-free.) Banks would also assess if you can put up enough collateral as security that you will pay back your loan in full. Real estate properties and other investments such as stocks and government securities may be used as collateral for bank loans.
With the current financial climate worldwide and the subprime mortgage situation in the US, expect banks and financial institutions to be stricter in evaluating loan applications. The Philippine banking system, although partly affected by the world crisis, is deemed strong enough to weather the financial crisis and its effects, thanks to conservative policies in place over the years. So in spite of the crisis, it is still a good time to apply for a housing loan.
At this time, there are also a lot of real estate projects ongoing in Metro Manila and major cities in the provinces, so you can have your pick of the best house that would meet your and your son’s needs. If you want a brand new house or condominium, look into house-and-lot or condominium packages that are at pre-selling stage as these will be cheaper. Make sure the property is in a good location, has good potential to appreciate in value, and near your place of work and your son’s school. If you can live with a previously owned unit or house, check out the list of foreclosed assets sold by banks and financial institutions; these will be cheaper but may still qualify as a good buy.
When applying for a housing loan, scout first among the banks for the best terms. A loan payable over 20 years will be reasonable as payments will not be too steep. At the end of 20 years, you will be 65 years old, and will be able to enter retirement debt-free. Check also with the Social Security System, Government Service Insurance System and Pag-Ibig Fund for housing loans you can avail of at lower interest rates.
How much loan can you afford to assume? “No more than 40 percent of your monthly take-home pay should go to paying all debts, including mortgage payments,” advises Citibank in its booklet Use Credit Wisely. So before you sign on the dotted line, make a budget and see if you can afford the monthly payments for the next 20 years. And always, read the fine print before affixing your signature.
(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts )
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