Navigating property investment: Know the 30% rule
When it comes to investments, a lot of individuals are increasingly recognizing the importance of early acquisition of life insurance, investing in stocks, and exploring other income-generating opportunities. It's no surprise that younger generations, including Millennials and Gen-zs, are also beginning to see the value in real estate investment, whether for personal use or as future incomegenerating assets.
These generations, mainly young professionals in the early stages of their careers, are displaying a strong interest in property acquisition, prompting developers to adapt their offerings to cater to this market.
To make their projects more affordable, developers have introduced pre-selling properties with extended downpayment terms, sometimes as long as four years at zero percent interest, for as low as ₱15,000 per month. This might seem very attractive and affordable, especially during the downpayment stage. However, it's essential to consider the monthly amortization when financing the remaining balance through a bank loan. Is it still affordable?
This is not a general practice, but some realtors focus on highlighting the lowest monthly payment in their posts, without delving into the entire payment process after the downpayment stage. This is why having a consultation, with a significant emphasis on income capacity and budgeting, is crucial before finalizing any property transaction.
key aspect to consider is what we refer to as the "30% rule," which is followed by lending institutions such as PAG-IBIG and various banks.
According to this rule, only 30% of your basic salary should be the maximum percentage allocated to your monthly amortizations. For instance, if your monthly basic salary is ₱100,000, 30% of that equals ₱30,000, meaning your maximum monthly loan amortization should not exceed ₱30,000. If you already have an existing car loan of ₱15,000 per month, when you apply for a property loan, your maximum monthly amortization should be ₱15,000 to maintain a total monthly amortization of ₱30,000, which is 30% of your ₱100,000 basic salary.
But what if you have the capacity to pay that amount, but your official income documented with payslips doesn't meet the criteria?
In this scenario, having a coborrower is a viable option, allowing your combined incomes to be considered. Another option is that the 30% rule applies separately to PAG-IBIG and banks. If you've already used up your 30% with a bank loan, you can explore PAG-IBIG financing since your 30% limit will reset. This distinction arises because PAG-IBIG is a government entity, while banks are private entities.
Understanding this straightforward rule, especially when seeking bank approval, is critical before making any payments to the developer. The aim is to avoid investing money only to discover a high risk of loan disapproval after paying the downpayment. So, whenever you're considering an investment, make sure to ask your realtor if there's an estimated monthly amortization in the property calculation. You can assess if your income is sufficient by dividing the estimated monthly amortization by 0.30 to determine the monthly income requirement.
For a complimentary financial assessment related to property acquisition, email at thepropertygeekph@gmail.com.
Jireh V. Mamaclay, 27, is an industrial engineer by profession. Recognized as The Property Geek across Facebook, Tiktok, and Youtube, he has transitioned from a banking role to a dedicated realtor in the South. Presently, he manages a team as the sales director of a realty enterprise. He intends to assist fellow Filipinos, particularly those within his generation, in attaining their property investment goals.