For mid class people who they indeed have enough money to spend in a month, and even they still have free money in the end of the month, buying home in cash is quite difficult. Home price is high enough for them to buy directly, unless they have somebody to borrow, such as parents, brothers / sisters, friends, or others. This is a chance for real estate financing takes place. This is the best solution for buying home. The finance institution will pay in cash for home you wish to buy, and then you have to pay installments, a relatively small amount of money to the institution. The amount of money you have to pay is determined by how long you wish to pay the installments and also bank interest rate. You can determine the period of your installment by checking your payment ability. Average installment is around 20% of your total income in a month.
You then realize that total price for home is much lower than total money you use for installment until settled. This is basic principle of loan, where you borrow money from bank and you have obligation to return the money in certain period. Bank can not just give you money for free. Bank needs money to run its operation, pay its employees salary, and others. You installment is one of the bank source for paying them. Bank gets benefit from interest rate, and you get benefit from having home immediately.
The obligation to return money makes bank not to approve all loan proposals. Bank will investigate your financial condition before approving your loan proposal. When the bank consider that you have ability to pay installments, your proposal will be approved. But you will be rejected when bank feels you do not have enough financial ability. Usually when you are working as employee in big companies, bank will be faster to approve your proposal, because you get regular salary from the company.
Real estate financing
