What Expenses Should You Save For Before Buying a House?
By Kyle Kam
One should avoid the notion that buying a property means paying for it in cash. A home purchase can be financed through housing loans from Pag-IBIG Fund, commercial banks, or the developers themselves through their in-house financing.
However, even if you are spending only for the down payment, there are other expenses involved that you should prepare for.
What are the other expenses you should save for?
TRANSFER OF TITLE FEES
Home ownership does not start when you get the Deed of Sale because this does not transfer the land title to your name but only reflect the sale that was done, whereas the land title is your proof of ownership of the real estate property.
According to the article of OMI Land Title Services, here are the steps one needs to do in order to do the land title transfer:
- File and secure the documentary requirements at the Registry of Deeds and Municipal or Provincial Assessor’s Office.
- Secure assessment of transfer taxes at the Bureau of Internal Revenue (BIR) and Municipal or City Treasurer’s Office.
- File documents at the BIR for the issuance of Certificate Authorizing Registration (CAR) or BIR Clearance.
- Pay the Transfer Taxes and secure the Tax Clearance.
- File documents at the Registry of Deeds for the issuance of new land title.
- File documents at the Municipal or Provincial Assessor’s Office for the issuance of new Tax Declaration.
This process requires payment of:
Transfer tax – The BIR defines Transfer Tax as the tax imposed on any mode of transferring the ownership of a real property, either through sale, donation, barter, or any other mode. The rate varies from 0.5 percent to 0.75 percent of the zonal value or selling price of the property, whichever is higher, and depending on the municipality where the property is located.
Registration Fee – This fee is paid for the registration of a deed of sale, conveyance, transfer, exchange, partition, or donation of a real property and is paid to the local Registry of Deeds or Land Registration Authority where the property is located. To make the calculation simple, let’s use Php1.7 million as the property’s selling price, an amount that incurs a registration fee of Php8,796.
However, if the property’s selling price exceeds Php1.7 million—for example, Php2 million—the buyer will add Php90 for every Php20,000 in excess of Php1.7 million. Hence, the Registration Fee for a property worth Php2 million will be Php10,146.
Notarial Fee – The Deed of Absolute Sale should be also notarized, which requires a fee of about 0.1 to 0.15 percent of the property’s selling price.
This process not only requires back-and-forth from several government offices but also constant follow-up upon processing to be sure that your requests are being actioned on.
The length of time depends on your location and if you will have no issues with all the document requirements. Michelle Martinez, a mom who personally processed her land title transfer, cited in her blog that it took her 87 days (April 4, 2010 – June 29, 2010) for the whole process.
If you’re planning to apply for a housing loan, there are extra costs tied to it, such as an appraisal fee, handling fee, mortgage redemption insurance, and fire insurance. This depends on the bank or lender, so make sure to shop around to find out who offers the best rate based on the property you bought and your financial capacity.
DOCUMENTARY STAMPS TAX
Documentary stamps tax or DST is a tax levied on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale, or transfer of an obligation, right, or property.
When a property is transferred through sale, DST is imposed on the Deed of Absolute Sale, whose tax rate is 1.5 percent or Php15 for every Php1,000 of the property’s selling price, zonal value, or fair market value, whichever is higher. For example, if a property’s selling price is Php3 million (and if this amount is higher than the property’s zonal value or fair market value), the DST will be Php45,000.
This can be filed at the Bureau of Internal Revenue (BIR) using the BIR Form 2000 (Documentary Stamp Tax Declaration Return). According to the BIR website, this should filed within five (5) days after the close of the month when the taxable document was made signed, issued, accepted or transferred; upon remittance by Collection Agents of collection from sale of loose stamps. The Documentary Stamp Tax shall be paid upon filing of the return.
REAL PROPERTY TAX
The Local Government Code of 1991, otherwise known as Republic Act no. 7160, requires property owners to pay Real Property Tax (RPT) every year. It’s imposed on all forms of property, and the rate differs between Metro Manila at 2% and 1% at provinces.
To get the amount you need to pay, you’ll need to multiply the RPT rate by the assessed value of the property. The assessed value is computed by getting the fair market value of the property multiplied by the assessment level.
The assessment level is a percentage applied to the property’s fair market value, and is pegged at 20% for residential properties, and 50% for commercial and industrial lands.
You’ll have to pay this amount along with a 1% tax levied by your Local Government Unit, also based on the assessed value of the real property.
Property owners have the option to pay once every year, or quarterly – which most seem to prefer. If you plan to pay the RPT for the full year, it must be paid at your LGU Treasurer’s Office on or before January 31st. If you’d prefer to pay in installments, they have to be paid to your LGU Treasurer’s Office on the following dates:
- 1st quarter: On or before March 31
- 2nd quarter: On or before June 30
- 3rd quarter: On or before September 30
- 4th quarter: On or before December 31
Take note that advancing your payments can get you a discount, but you’ll need to check with your city or municipal treasurer.
Like your income taxes, failure to pay on time will result in penalties. Late payments are subject to an interest of 2% (1 month) to a maximum of 72% (36 months) on the unpaid amount.
You can never really put a price tag on getting a home of your own, but for the sake of documentation, and being able to say that your home is yours – legally – you’ll have to make sure that you keep abreast of the expenses.
Luckily, you can set up your monthly loan fees to be debited automatically, removing much of the hassle. Stick to the schedules, and you won’t have to deal with much else.
Kyle Kam is from MoneyMax.ph, a financial comparison website aiming to help Filipinos save money through diligent comparisons of financial products. Check out Moneymax.ph and compare different prices of housing loans. Follow us on Twitter at @moneymaxph