This pandemic has given me more time to binge-watch on TV and YouTube and guess what! I’ve come across videos of young showbiz celebrities doing tours of their brand new homes. Some of these people are just in their early 20s and they already own homes!
You may be thinking well, that is them. They earn a lot as actors/actresses. Does that mean an employee in a company earning a 5-digit monthly salary will need to wait to rise in the ranks and earn 6-digit salaries before even considering buying a house?
No! You can own a house while still in your 30s! You will just need to set your mind to it, focus on your goal, stay disciplined with expenses, and know a few things more.
In a way, the pandemic is making it even more possible for young professionals to buy a house. The real estate industry has been in a slump since the pandemic began. It is slowly picking up now that the economy is reopening but real estate prices have not totally gone back up to pre-pandemic levels. I believe you can still find your first-ever home at an affordable price.
Why is the 30s a good time to think of buying a house?
If you have no dependents yet, you have a greater chance of buying a house because you do not have to think of providing for other people. You just have yourself to think of. Of course, if you have other dependents, it is still possible to pursue your dream but adjustments will have to be made with your budgeting.
Here are some reasons why it makes sense to think of buying a house at this age.
- You are more mature now than when you were in your 20s. People in their 20s who are just beginning to earn tend to burn through their salary faster. There is a newfound freedom in having a monthly salary and with new office friends, these millennials spend more on leisure, recreation, gadgets, travel, and the like. At 30, you have matured and now think of investing, building a financial nest, and maybe planning to settle down, if you haven’t already.
- In your 30s, you are likely to already have an active credit card with a long credit history. This will be an advantage for loans you may make.
Your career has also stabilized. You value job security more. - By age 30, job security is an important factor. Stability is a big consideration when approaching financial institutions for loans. They need to see that you have a steady income to cover all the amortizations as well as other home-related expenses such as insurance, maintenance, utilities, etc.
Financial considerations
There are many other non-financial considerations when buying a house. Location and ease of commute is very important. The size and amenities in a house are considerations as well. But I will focus on the financial side as there will be different financial conditions. This article will focus only on brand new homes. Owners selling older homes will normally want to be paid in full upfront so the financing will be slightly different.
Decide on your budget
Remember that you will have expenses besides the amortization on the house. A safe rule of thumb is to allocate not more than 30% of your monthly salary on loan amortization. Budgets may differ though based on your personal circumstances. If you are still single, you may have a larger available budget compared to someone who is married, on a single income, and has a child.
It is also prudent, even in this early stage of your decision process, to estimate your monthly amortization. This will give you an idea at the onset of the financial demands it will make on your pocket. At this point, you should also have a list of fixed and recurring expenses (utilities, food, transportation, medicines, etc.), an emergency fund, in order to determine what your spendable income is for the amortization.
Prepare for the down payment and upfront fees
A down payment is usually required (up to 20% of the purchase price), with the balance being financed over several years. A P2-million condo unit, for example, will need at least PhP 400,000 as down payment. In addition to the down payment, there could be upfront costs like bank processing fees that you have to cover. If you still do not have that amount, make a plan to save up for it and stick to the plan. It will require belt tightening, discipline, and perseverance to achieve this.
Compare different financing sources
Being in your 30s means you have many productive years ahead of you to pay off the loan. The longer the amortization period, the smaller is your monthly amortization amount, making it more affordable. We currently have three major sources of financing: PAG-IBIG financing (if you are a member), bank financing, and in-house financing.
PAG-IBIG financing can be as long as 30 years; it also has the lowest interest rates among the three types of loans. Bank financing has the next higher range of interest rates and the documentation process can be tedious and long. In-house financing, through the property developer, cuts the documentation and review process but would probably have the highest interest rates. Some types of loans will require you to mortgage the home as clean collateral. Study the differences among these loans and get a better estimate of your monthly payments. How close or far is it from your earlier estimate? Are there expenses you need to adjust in case your current estimate is far from your original estimate?
Be ready to cover any loan shortfall
Most loans will not cover the full amount of the house (net of the down payment). Some loans will only cover up to 75% of the property value. This means that aside from covering the down payment above, you will need to shell out money to cover the shortfall or look for other credit sources to cover it.
These may all seem overwhelming at first but take heart. Once you set your mind to it, all these are doable. Just imagine having your own home in your 30s. The earlier you start, the earlier you finish paying for your home. By the time you reach your midlife and looking forward to retiring, you would already have fully paid for your home.