Borrower’s debt-to-income ratio

The value of the property will be weighed against the borrower’s capacity to pay and the result is the loanable amount. As a practical guide, your (and your spouse’s) total income should be at least three times the monthly amortization after deducting normal living expenses. To illustrate, if you wish to borrow five million pesos payable over so many years and the monthly amortization is P50,000 pesos, your total monthly income should be at least P150,000 after normal expenses have been deducted. “Normal expenses” include food, education, transportation, other household expenses and payment on other indebtedness.

If you take to real estate professionals, they will call the above the debt-to-income ratio. The more stringent application of the rule is to multiply your gross monthly income by 36% to get the total allowable monthly debt payments. Subtract the amount of normal living expenses and other indebtedness and you get maximum monthly mortgage payment.

To illustrate:

P200,000 (gross monthly income) times 36% = P72,000 (allowable monthly debt payments)

P72,000 minus P50,000 (living expenses and other indebtedness) = P22,000 (maximum monthly mortgage payment)

To get an idea about how much your income should be vis a vis the amount of loan you intend to take out, use the online calculators here and here.

3. Even if the approved loan is enough to purchase the property you chose, you will still need to spend on the “miscellaneous expenses” like insurance, transfer fees, documentary stamp taxes, etcetera.

Having considered all that, you have to decide where to apply for a housing loan.

2 Comments

2 Comments

  1. happy joy

    06/04/2008 at 5:50 pm

    Sobrang salamat Ms. Connie! Me and my husband is planning to buy a house somewhere in Laguna. All this information is very helpful!

  2. Connie

    06/04/2008 at 6:35 pm

    No problem, Joy. Am happy to write about what we learned along the way. :)

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