15 Jan Why A Large Down Payment on Your First Home Can Save You Money
Hey there, Acadeo friends!
How many of you go window-shopping online for houses for sale? Many of us dream of having our own house and lot, whether for our future family or as an investment. For some, this dream is within arm’s reach, whether it’s because they have enough funds saved up or because they have an opportunity to loan the amount needed.
It pays to be cautious, though. Investing in real estate, whether it’s by buying homes or renting properties, can get very complicated, stressful, and most importantly, costly.
Here is why paying a large down payment can actually save you money in the long run.
ONLY PAYING THE MINIMUM DOWN PAYMENT COSTS YOU MONEY
Buying a house and lot is very different from buying an expensive piece of furniture or home appliance. With furniture or appliances, paying a small percentage of the total price and then paying off the rest in installments may be enough, but for real estate, this is a big money trap.
One reason for this is because real estate financing includes payments for property insurance, taxes, and legal fees.
These costs are on top of the property cost; for example, a PhP 500,000 worth empty lot bought directly from the over may still have an additional PhP 50,000 additional fees added for the legal processing fees alone.
Property insurance fees are paid monthly as well, whether or not you’re living on the property already – once your housing loan is approved and paid to your home developer, these fees kick in immediately.
EXPENSES YOU DON’T THINK ABOUT (UNTIL YOU HAVE TO)
The initial cost of your chosen house and lot doesn’t include the fees for electricity and water meter installation or reconnection, as well (each of which can cost up to PhP 5,000, to be paid immediately). If you want to have your home repainted? That’s another PhP 5,000-10,000.
Then you have to account for the costs of moving your belongings from one place to another. Depending on how many trips are needed and how far your moving service has to drive, moving your things to your new home can cost you around PhP 2,000-3,000 to start. If you’re moving from one city to another, you could easily spend PhP 12,000-15,000 just for 2-3 trips.
You’ll be paying for all of these costs on top of your monthly loan payment, which also has interest rates of anywhere from 4-12% depending on your financing.
That is to say: the bigger your downpayment on a real estate property, the less you’ll be paying for the monthly amortization, which in turn helps you save for the other home maintenance costs you’ll encounter when you get your new home ready to live in.
HIDDEN COSTS (THAT ARE ACTUALLY HIDDEN)
Here’s something that many developers won’t tell you until you ask: home improvements, like constructing a fence or a home extension, requires a bond fee or a construction permit.
These fees can cost anywhere from PhP 2,500-10,000 (depending on your developer, part of the fees will be reimbursed after the construction is completed), and are paid to your home developer’s property management. Part of these fees insure your and your neighbors’ properties from liabilities resulting in unexpected damage from construction.
If you don’t live in a subdivision or housing project with a developer, you still need to get a construction permit from your local barangay, which can cost around PhP 500-3,000.
Of course, you can opt not to pay, but there are risks: if your neighbors complain about any noise, road obstruction, or damage to their property, you will be completely liable to pay compensation, whether or not it’s your fault (you’ll also have to shoulder legal fees if you want to contest or argue against the complaint). You could also be fined for illegal construction, which can take months to be resolved.
And these are just for fees alone! You still have to buy cement, sand, hollow blocks, tiles, nails, tocks, angle bars, and so on – you could rack up an expense of at least PhP 10,000 altogether just for a nice front porch or fence!
THINGS TO KEEP IN MIND
Buying your first home is a significant achievement in many people’s lives, and so it can be really exciting to jump into a loan or sale feet first. However, buying a home when you’re not financially secure can lead to more problems later on.
You don’t have to be a rich person to get your dream house. You need to be financially independent, though, and be smart about how you plan on financing your home, whether it’s through bank loans, savings, or developer financing. If paying about 30% more than the minimum down payment means you pay much less for your monthly amortization through the years, consider doing so if you can afford it.
The important thing is to “gastos” responsibly – even with buying homes.