Cash Vs Mortgage: A Guide on Home Buying Financing

Bahay, kotse, lupa. That is the mantra of many Filipinos to inspire themselves to work hard either here or abroad to earn enough savings to buy them, especially the home. Having these three items in Filipino culture often equates to wealth and comfort, and for the savvy few, investments that could provide supplemental income.

The advent of the home loan in the Philippines has provided working class Filipinos affordable options to buy a home within their means. Government programs such as the Pag-IBIG Fund also encouraged minimum-wage workers to realize their dreams without pinning their hopes at winning the lotto.

Buying Your Home With Cash

In the Philippines, cash buyers will still be facing high transaction costs as compared to those who purchase their homes via home loans, or mortgage. GlobalPropertyGuide.com reports that home buyers shoulder 1.975% to 4.25% of the property value, which includes lawyer fees, deed of sale, and others. But experts say that buying a home using cash makes perfect sense, especially for those who do not wish to get tied to the hassle of the home buying process. Having the cash to buy a home makes you an attractive buyer, ergo getting you more home type options to check out from various sellers or developers. Moreover, motivated sellers are also compelled to offer you cash discounts on the spot, especially if you are at the stage of comparing a couple or more home types and are on a time constraint.

And for those who are looking to earn from their homes, the absence of the mortgage enables them to sell the house immediately at a profit or loss in any market condition.

Also, there is that danger of sacrificing your liquidity. In finance, putting all your eggs in one basket is not always a good sign of your wallet’s future health. But if you have no choice but to purchase your home with cash, real estate expert Andy Mañalac recommends that apart from setting aside funds to cover for personal debt and expenses, home buyers need to have at least 6-months’ worth of buffer funds to pay for the amortization.

Buy your home using cash if:

• you need to buy a home ASAP;
• you don’t want to go through the hassle of applying for a home loan, producing supporting documents, and making amortization payments for at least a decade;
• you are a foreigner and are not qualified for local mortgages.

Buying Your Home Via Mortgage

Getting a home via mortgage allows the owner to unlock the value of the property, which can be used to finance the owner’s major expenses. So in essence, your home also takes care of itself and the owner. Proceeds from home equity loans can be used to finance major expenses like your children’s education, or if you want to make some home improvements.

For serious real estate investors, the biggest attraction in buying a home with a mortgage is the financial leverage it offers.

Daniel Dy of Security Bank said that although there are strides made online to make home loan application and processing easier, there is still much to be done to improve mortgage system in the country. He identifies high interest rates, the lack of a credit bureau, and the lack of education from the stakeholders of the country’s mortgage system (buyers, developers, banks) as the biggest barriers in making the mortgage process as smooth as we wish to be.

Online is big for us. We think that nobody’s really done it right. It is very difficult to do home loans online because it is 10 times difficult than processing credit cards, for example. But we think it is an underdeveloped stage and we wanna go into it.

Buy your home using mortgage if:

• you wish to diversify or invest your remaining cash in other investments or assets;
• you see your property as your dream home, and have no plans to sell it in the near future.

If money is no exception, would you prefer to pay for your home in cash or with a home loan?

Join the #cashvsmortgage debate by leaving your comment below.