Home ownership: The 30/30/3 guide and how to follow it

Before you get too deep into listings and bank home loan interest rate comparisons, make sure you know what you can actually afford. The 30/30/3 guide is a useful starting point.

Buying a home is one of the biggest financial decisions you'll ever make. As the need to put down roots grows, many find themselves weighing whether renting or buying a house makes more sense for their situation. There's no universal timeline for when you should be ready, but the 30/30/3 guide is a practical framework for gauging financial preparedness.

What is the 30/30/3 guide?

The 30/30/3 guide is a way to determine if you or your household has the purchasing power to afford a house of a certain range.

The 30/30/3 guide has three components:

1. Your total monthly housing costs — mortgage, property tax, insurance, and association fees — should not exceed 30% of your gross monthly income.
2. The purchase price of your home should be no more than three times your household's gross annual income.
3. You should have at least 30% of the home's value in cash or liquid assets before buying: 20% for the down payment and 10% set aside as an emergency fund.

So, let’s say you make PHP 600,000 annually, and you live with two other people who also make the same amount–a total of PHP 1.8 million in total household income. This means your maximum mortgage should be limited to PHP 540,000 per year or PHP 45,000 per month. This also means that your household should only buy a house valued at no more than PHP 5.4 million.

Determining your purchasing power

Look up online real estate listings in your preferred area within your target price range. You can also plug your home price and loan term into an amortization calculator to see how your monthly payments would break down.

If you find properties that fit your budget, your household may be in a position to afford a home, though existing debts can affect your overall borrowing capacity.

If nothing fits, this could suggest that a more affordable location may be worth considering, or that your household may not have sufficient purchasing power in the current market.

Getting a bank loan

With your purchasing power established, a home loan, such as one of Metrobank's home loan options, is often the natural next step, as many Filipinos find it difficult to buy a home without one. Your 30/30/3 results give you a clear basis for how much mortgage you can comfortably repay.

Of all the figures you'll encounter, the interest rate deserves the closest attention. Even a fraction of a percentage point can add tens of thousands of pesos over your loan term. Understanding the meaning of amortization helps clarify how principal and interest interact, so there are no surprises once repayment begins.

Advantages and disadvantages of following the 30/30/3 guide

Pros:

• You buy what you can afford — Many homeowners struggle to pay their mortgage and other living expenses because they simply cannot afford the home they bought. If you find yourself unable to save or having to use your savings to make ends meet, it’s a sign that you’ve purchased a house that your household’s income cannot afford.
• You’re setting your expectations — When you estimate your budget for a house with your own income or your pooled household income, you already get an idea of what properties you can afford. Many real estate companies entice buyers with low down payments only for people to struggle with the mortgage payments.
• You know what loans to shop for — Now that you have a guide on how much you should be spending on mortgage payments, it should be easier to shop for home loans and determine whether or not you can afford to pay for it.

Cons:

This can limit your options — If you’re strictly following this rule, you could be moved to look away from certain real estate locations. This could lead you to miss opportunities where property owners sell their properties below the average price.

• It is not planned for contingencies — This guide doesn’t take into consideration contingencies that may affect your financial position. It’s important that, on top of your mortgage payments and living expenses, you still have savings that cushion your household in case of an emergency.
• As a final note, just remember that this guide isn’t meant to be a hard rule for buying your first home. Think of it as a strategy to help you maintain your financial stability when it’s time for you to pay your mortgage.
• Meaningful memories begin at home. If you're planning to buy a house, renovate, or construct your dream home, Metrobank can help you upgrade your quality of life.

Build the home you deserve with a home loan from Metrobank. Get an idea on how your monthly payments will look like with our Home Loan Calculator.