"Home" is considered the largest asset in life, with a high value that few can afford to buy outright with cash. Most people opt to apply for a loan from a bank. Therefore, preparing in terms of financial planning, maintaining a good credit history, and thoroughly understanding the information is crucial. This ensures that one can apply for a loan correctly, get approved by the bank, and ultimately own the dream home they desire.

Building a Financial History

Those applying for a home loan from a bank must build and maintain a good financial history, as this is the primary information considered in loan evaluations. Banks categorize borrowers into three main groups:

Group One: Salaried employees with income deposited through a bank account. The bank will review the history from pay slips or salaries paid by employers through bank accounts each month, which usually presents no issues regarding income.

Group Two: Small business owners who handle cash transactions. For example, those who buy and sell goods should periodically deposit cash from sales into their bank accounts, a practice known as maintaining an account, so the bank can see and assess the borrower's income level.

Group Three: Employees who receive cash wages without bank deposits. Most of the time, they spend cash immediately after receiving it. Therefore, to show the bank that they have income, they should open a bank account and deposit their wages before withdrawing them when needed. This way, at least the bank can see the cash flow coming in each month.

Maintaining an account with the bank builds document credibility, which significantly impacts the chances of loan approval.

Save 20% of the Home Price

When planning to buy a home, one should save at least 20% of the home's value for a down payment. This increases the chances of loan approval since there is no need to borrow the full 100% of the home's price. It also helps ensure that the mortgage payments do not become a burden on oneself or the lending bank. Failing to repay the loan not only means losing the chance to own a home but also damages credit history and diminishes future loan opportunities.

From preliminary studies of home loan applicants at commercial banks, two groups were identified: those with incomes below 50,000 baht per month and those with incomes of 50,000 baht or more. The first group showed no savings plan for buying a home, while the second group had some savings plans but still fell short of the 20% target, often aiming to buy homes priced between 4-5 million baht.

Several reasons explain why most people do not save money: first, they have existing rental obligations for apartments or houses, leaving little room for savings. Second, they have car loan debts that must be repaid for at least four years, with monthly payments potentially reaching 50% of their income. Third, rising home prices make it difficult to save adequately. Lastly, many tend to save in low-yield savings accounts, lacking investments that generate better returns, resulting in no additional income sources for saving towards a home.

Consequently, without savings and the ability to make a down payment, these individuals often have to borrow the full 100% of the home's price from banks, leading to a low chance of loan approval, especially for those already burdened with high debt. Banks typically assess how the new home loan will affect existing expenses and debt repayment. Therefore, if an individual already has significant debt, taking on additional home debt can severely impact their financial stability, making it unlikely for them to repay the loan, which may lead to denial of the application.

According to sound financial discipline, one should plan to save for a 20% down payment when buying a home and use bank financing for no more than 80% of the home's value. Additionally, one should save for emergencies, which can be achieved by setting aside about 10% of monthly income into savings.

Monthly debt obligations should not exceed 40% of income, as individual incomes vary, and home and condominium prices come in various ranges. Therefore, the appropriate income level for purchasing a home is not uniform. The principle here is to ensure that debt levels are manageable and do not adversely affect one's quality of life. Generally, it should not exceed 40% of income, as there are additional expenses after purchasing a home, such as utility bills and maintenance fees, which are often overlooked.

For example, with a monthly income of 20,000 baht, mortgage payments should not exceed 8,000 baht per month, leaving 12,000 baht for living expenses. Carrying a debt burden of 70-80% of income reflects purchasing a home beyond financial capability, especially for those with lower incomes. For instance, if someone earns 20,000 baht per month and has a debt burden of 70-80%, they would be left with only 4,000-6,000 baht for living expenses, making life quite challenging compared to someone earning 100,000 baht, who, even with 80% debt, would still have 20,000 baht left for expenses.

For those already carrying other debts, if they take out a loan to buy a home, the combined debt burden should also not exceed 40%.

Choose a Long Loan Term to Reduce Pressure

When borrowing to buy a home, one should choose the longest repayment term possible to keep monthly payments manageable. Typically, commercial banks offer repayment terms of up to 30 years. If one can pay off the loan early, they will be viewed as a borrower with a good history, increasing their chances of approval for future loans.

However, if one chooses a shorter repayment term and later requests an extension, it is legally considered a restructuring of debt, which can negatively impact credit history and make it more challenging to obtain other loans in the future.

Long-term repayment can be shortened by making extra payments, known as 'prepayment', which involves paying more than the required monthly amount to reduce the principal balance. This helps save on interest in the long run, effectively shortening the repayment period.

Reducing Interest with a Decreasing Balance

The interest rate on home loans is a key factor in determining monthly payments, available in both floating (Floating Rate) and fixed (Fixed Rate) options. Borrowers can choose based on their preferences for the first three years by assessing interest rate trends.

If one believes interest rates are likely to rise, a fixed rate should be chosen. Conversely, if rates are expected to drop, a floating rate may be more suitable. If one cannot predict interest trends, comparing the rates offered by different banks and the average rates for the first three years is advisable.

Home loans are structured as decreasing balance loans (Effective Rate), where each monthly payment is divided into principal and interest. In the early stages of repayment, the payment primarily covers interest, with a smaller portion going towards the principal. For example, if a home costs 1 million baht with an interest rate of 3.5% per year, a monthly payment of 6,000 baht would see approximately 2,900 baht going towards interest and 3,100 baht towards the principal in the first payment. In subsequent payments, the interest portion decreases to about 2,600 baht, while the principal payment increases to 3,400 baht. This pattern continues until the loan is fully paid over 360 installments or 30 years.

Managing Home Debt to Reduce Burden

After three years, one has the option to refinance or make extra payments to reduce interest costs.

Refinancing involves taking out a new loan at a lower interest rate than the original loan and using that new loan to pay off the existing one. However, refinancing comes with costs, including a mortgage registration fee of 1% of the refinancing amount, loan processing fees (which some banks may waive), and insurance or other service fees as determined by the refinancing bank. Therefore, borrowers must assess whether the interest savings from refinancing outweigh the costs involved. If the home price or remaining principal is not high, refinancing may not be worth the expenses.

On the other hand, making extra payments means paying more than the required monthly amount so that the bank can apply the excess to reduce the principal balance. This, in turn, lowers future interest payments based on the reduced principal. For instance, if the previous payment was made on March 5, and an extra payment is made on March 20, the next payment on April 5 will apply more of the payment towards the principal because the interest for that month is lower due to the reduced principal from the prepayment.

However, whether to make extra payments or refinance should be considered carefully, as the funds used for extra payments could be invested to generate returns, such as purchasing mutual funds or investing in other assets that yield higher returns than the home loan interest rate, even though such investments come with increased risks.

Home Price and Location Help Save Money

The price of the home and its location also significantly affect financial status.

Especially for those with lower incomes or no savings or investments, it is advisable to choose a home or condominium within a price range that aligns with their financial capacity or to select locations outside business districts or suburban areas where the subway extends, as these homes are often significantly cheaper than those in the city. This approach is financially more viable and less burdensome.

The money saved from purchasing a less expensive home in a more distant location can be invested to generate returns. As time passes and income increases, the returns from investments can allow for the purchase of a home in a closer or urban location.

Buying a home involves many factors, but it is clear that the path to owning the dream home is not overly complicated. With proper financial planning and preparation, one can avoid mistakes in purchasing a home or creating future financial problems, ultimately achieving the goal of homeownership.

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