The “3-25-30” Rule Before Buying a House

A house is one of the most wanted assets for most people and is considered one of the four basic needs of living. It’s not easy to own a house if you don’t make a plan to do so; somehow, it’s not too hard to be a house owner.


During the COVID-19 outbreak, we’re bombarded with a tremendous number of ads, hot promotions, enticing deals and offers so buyers are clueless about which project is value for money.


Tempting promotions are irresistible for many people and we often see them carelessly make decisions without realizing financial readiness. Those with good financial standing can survive but those who can’t make it would take years to finish all installment payments, or they eventually may have to sell their houses.


As housing is incredibly expensive, most people have to apply for a loan from a financial institution which creates a long-term burden of installments. Some people spend almost a lifetime before they own a house, while some have a chance to own a house but it later leads them to financial distress. To avoid those painful consequences, it’s best to buy a house when you’re ready.


Those who are about to choose a house to live in should start by checking their financial readiness with the formula “3 – 25 – 30”.

Don’t buy 3 times over

An important factor to evaluate your financial capability before making the decision to buy a house is housing price. Basically, don’t buy a house with a price that exceeds 3 times your annual gross income, such as a Salary of 30,000 Baht equivalent to 360,000 baht per year. To play safe, you shouldn’t spend more than 1,080,000 Baht for a house.


Prepare a 25% cash budget

Nowadays, even though you don’t have a big sum of money but may be able to own a house, twin houses, townhouse, or condominium because financial institutions can provide 100% housing loan.


However, if you apply for a full 100% loan, the next thing is you’ll have to spend a longer installment period of time. That means your interest burden will be extended longer as well. Therefore, to reduce the principal with an interest rate, you should have an amount of savings of at least 25% of the expected price you want to buy.


For example; if you aim to buy a house valued at 1,080,000 Baht, you should have the minimum of 270,000 Baht cash on hand. That sum of money will be a down payment which means you can apply for a loan of 810,000 Baht only. This way helps save interest or you can allocate some money to pay miscellaneous fees like decorations, essentials, or keep some money for an emergency.



Don’t spend over 30% of the salary on an installment loan
 

To keep your financial status agile in the future, money managed for installment payment should not exceed 30% of the salary, such as a Salary of 30,000 Baht, you shouldn’t pay over 9,000 Baht per month on installment.


In summary, suppose gross annual income is 360,000 Baht or 30,000 Baht per month. You should find a house at a maximum value of 1,080,000 Baht, and your available savings before buying a house should be about 270,000 Baht. Most importantly, never pay for installment more than 9,000 Baht per month.


Example: Salary and Recommended House Price (Baht)                                

Salary

Recommended House Price

 

25% Cash Available on hand

Reasonable House Installment Plan;

 Not exceed 30% of the Salary

 

20,000

720,000

180,000

6,000

30,000

1,080,000

270,000

9,000

40,000

1,440,000

360,000

12,000

50,000

1,800,000

450,000

15,000

60,000

2,160,000

540,000

18,000

70,000

2,520,000

630,000

21,000

80,000

2,880,000

720,000

24,000

90,000

3,240,000

810,000

27,000

100,000

3,600,000

900,000

30,000

 

Additional to the 3 above-mentioned conditions, you need to have financial discipline, choose a proper and affordable house, and be able to be responsible for your financial obligations. Above all, the key factors in buying a house are checking your “savings”, and then your “income” whether it’s possible to get a loan; after that, consider if you’re pleased to pay “installment” without pressure.