From equity in a company to a string of pearls, assets can come in many forms.
Shares in a company are assets. So are artworks and jewelry. But cash is the one that is most associated with purchases.
You want to buy something? Hand over some money. It is a clean and easy way to close a transaction.
But, what about making bigger purchases – like a house? For most people, paying in cash upfront is not an option. But that doesn’t necessarily dash your hopes for home ownership.
“What if I can’t make the down payment?”
In the book, Mortgage Myths: 77 Secrets that Will Save You Thousands on Home Financing, the authors acknowledged that the optimum rate of down payment used to be 20%. The logic behind this is reasonable. Having to pay less on the balance means you are paying less on interest rates too.
But, many individuals will need some time to save up for a 20% down payment. And waiting until you have enough may not always the prudent choice.
For example, inflation can lower the value of your money. It’s like running to finish a race, while the finish line moves further and further away from you.
Another reason is that some moves make more financial sense if they are done right away. If you need to get a house right now, waiting until you have enough cash on hand is not practical.
In cases like these, try to negotiate a lower down payment from the seller. You end up paying more in the end, but there is an upside: you get to manage your cash flow better.
Take a closer look at the down payment and see how much you can afford to pay, without ruining your budget for day-to-day expenses.
“What if I can’t get a bank loan?”
People who don’t have a lot of cash on hand usually go straight to the bank for a home bank loan. It is a tried and tested method to get the money to purchase a home. But, it is not always a sure shot.
Not everyone can get approved for a loan. For instance, your age might disqualify you. Some banks require that borrowers not exceed 65 years of age at the end of the loan term.
Take the opportunity to reflect, if you’re ever rejected for a loan. Ask yourself: what do they see that I don’t? If it is a matter of being unable to comply with the documentary requirements, you can work on the documents and submit again.
Another reason for bank rejection is that you have too many outstanding loans. In these cases, work to pay off those loans so you have a cleaner slate when you re-apply to the bank.
You can also approach other people or groups to give you a loan. Parents or relatives can be a sources of cash if they are willing. These transactions can give the best terms because they are based out of love and generosity, rather than business.
Some people opt to ask someone they trust to co-sign the mortgage. If the co-signor has good credit standing, you could qualify for a bigger loan.
However, this can come with many risks, so it is important that everyone involved understands what might happen. If you miss a payment, their credit will be affected too. The New Civil Code of the Philippines, specifically Art. 2047, indicated they are also liable for the amount if you are unable to pay.
“What if I have a place in mind, but I can’t afford it?”
Having cash on hand and being able to afford something can mean different things. Home purchases need to stay within your budget. Otherwise, you risk getting buried in debt or have difficulty meeting other necessities like food or medical bills.
But, you can explore other ways to get a compromise you are satisfied with. Think about the specific details that draw you to a certain property and try to find an alternative.
For example, if you want to live in Makati, but cannot afford the Makati rates, explore nearby communities. BGC is very close to Makati and also has that bustling, cosmopolitan feel. But, BGC has more options when it comes to price points of homes.
You can also be on the lookout for pre-selling properties. This is a term used to describe the practice of selling real estate like condominiums and house and lots before they are actually completed.
Pre-selling properties generally slash huge amounts from the price. It is not unusual to see property costing 30% less than what you would pay if you bought the property when it is finished.
Real estate is considered one of the safest investments to make, because land rarely depreciates in value. On that part alone, the purchase of a house is a great decision.
But, there are other reasons to buy a home. Whether it offers a sense of security and accomplishment, or simply brings greater enjoyment, becoming a homeowner can greatly enhance the quality of your life.