Why Financial Literacy is Important For the Homebuying Process
2022 Sep 26 | by Apple Barretto
What financial literacy skills do I need for the homebuying process?
- Making budgets
- Keeping track of your credit score
- Qualifying for mortgage
- Planning for costs of homeownership
- Preparing a downpayment
- Working with a real estate agent
- Making a reservation on a home
- Closing on a home
Homebuying is a complicated process. As you go through it, you are likely to encounter many financial terms, concepts, and requirements that you haven’t heard of before.
This is why financial literacy for the homebuying process is important — it gives you a firm grasp on what’s needed from you, and empowers you to make informed decisions on your homebuying journey.
Luckily, you can overcome these barriers before you embark on this journey to homeownership — it all starts with education. Here are the eight financial literacy concepts that you as a buyer should know before finding a new home.
If you’re serious about investing in a home, then it’s time for you to start budgeting.
The first thing that you should do is list your monthly income and expenses, including any miscellaneous accounts that you may have.
Once you have added all of these numbers together (your total income minus your total expenses), you have to take a closer look at your spending.
If you have some funds left over after your expenses are paid for, then look for ways to save or invest this to improve the funds you can put towards a new home.
If, however, you’re spending more than you earn, then it’s high time to cut back on unnecessary expenses, such as eating out or shopping. This should free up some of your income for your upcoming investment.
Keeping track of your credit score
To financial institutions, there are a few things that are more informative about your reputation and reliability as a debtor than your credit score and credit history. This is determined by the amount of debt you have, and how consistently you’ve managed to meet your regular debt payments.
This is why keeping close track of your credit history is an important financial literacy skill for you as a homebuyer. Keeping a good credit history tells lenders that you’re more likely to pay back your home loan. So, you’d be in a good position to get the best loan terms for your house mortgage.
Qualifying for mortgage
A mortgage loan is used to buy a home and is an agreement between you and the lender that they have the right to reclaim your property if you fail to repay the money you borrowed.
It’s why credit score and history are so important in securing a mortgage loan. And, it will also determine what interest rates and mortgage loan amount financial institutions will offer to you.
If your score and history show too much debt, it may disqualify you from even applying for one in the first place. This takes up back to the first point of financial literacy — you need to manage your debt and budget before attempting to buy a new home.
Knowing what mortgage loan programs are out there is also an important financial literacy skill. Home Development Mutual Fund (HDMF), more popularly known as the Pag-IBIG Fund, is a national savings program that all Pag-IBIG members can register for. Another option is bank financing, which has varying minimum loanable amounts and requirements depending on which institution you go to.
Planning for costs of homeownership
Aside from the mortgage payments, you also have to consider the future and continuous costs of homeownership. This will not only include property taxes, but also payments for utilities, association fees, home insurance, and more.
It’s important to understand that the financial responsibility of buying a new home comes with many ongoing payments and that it would help if you planned for them too. Luckily, we’ve prepared another guide on how to prepare financially for a new home that you can refer to.
That said, these costs are largely dependent on where you live, and can differ from one property to another — so be sure to do some research on the area you’re planning on moving to.
While budgeting for your new home, it would be a good idea to set aside funds for these regular payments, and some extra to cover any costs that can come up suddenly.
Working with a real estate agent
A real estate agent will be a valuable asset during the homebuying process. They’re there to help you find a property that fits your needs and assist you in the bidding and closing process. Their job is to assist you — but they can’t do it if you’re not equipped with the right financial literacy skills.
For example, if you don’t have a budget, the real estate agent will have a hard time finding a home that fits your financial means. Furthermore, they can’t estimate your closing costs or negotiate fees if they don’t know what you can afford. That is why financial literacy is essential when working with a real estate agent.
Making a reservation on a home
At this stage, you’ll be working with a real estate agent to purchase the property. This is where it becomes very clear why financial literacy is important.
For most developers in the country, such as Pueblo de Oro, we follow a reservation policy. This requires a reservation fee to be paid in cash upon reservation, wherein you have to also present fully-filled out requirements such as our reservation form, buyer information sheet, proof of income, amongst other documents.
These requirements must be submitted within 30 days of our reservation agreement for locally-employed buyers, and within 60 for OFWs.
Additionally, buyers are asked to sign a computation and scheduling of payments, which includes a breakdown of your down payments, monthly amortizations through your home loans, and much more. On top of equity and miscellaneous fees, there are plenty of payments and financial documents that have to be handled the moment you reserve a house from Pueblo de Oro.
It’s important that you’re well versed in these factors, so you can follow through on your financial commitments to your dream home. For more information on our reservation and payment process, click here, or send our team an inquiry here.
Closing on a home
Closing on a home might be the last step in the process, but theere is still tons of paperwork that you need to finish. And, each piece of paperwork comes with costs attached — usually in the form of transfer fees and taxes.
But this can all be managed with the right preparations. We’ve compiled a handy guide on how to apply for real estate tax in a previous post, and the rest you can do with research into your area.
Financial literacy is never more important than when you’re preparing to purchase a new home. It’s likely one of the largest expenditures you’ll ever make, so understanding these eight points of financial literacy for homebuying is crucial for setting yourself up for success on this journey.
For more help on the homebuying process, contact Pueblo de Oro today. We can assist you on your hunt for your dream home in any of our master-planned communities in Cebu, Pampanga, Cagayan de Oro, and Batangas!