Have you ever been compelled to choose between a car and a house purchase? Consider the following reasons why you should buy a home rather than a car.
After years of working a steady job (and possibly even getting promoted once or twice) and diligently saving a portion of each paycheck, you’ve saved enough money to invest in something meaningful—a true millennial milestone. For some, the logical next step would be to acquire a home or a vehicle. When external factors are taken into account, however, which course of action is the more prudent one?
Certain individuals will persuasively argue that purchasing a car is the better option; after all, it is more affordable, easier to maintain, and more convenient. Having a car instills a sense of independence and adventure, as well as the confidence that you can get wherever you want to go using nothing more than your own sense of adventure.
However, in today’s market environment, with rising gasoline prices and deteriorating traffic conditions, is a car truly the more practical option? Consider the following reasons why home ownership may be a more prudent initial investment:
1. The value of a car depreciates over time
Forbes states that “a car is a depreciating asset.” As it ages, its value rapidly depreciates. A car used for personal transportation is unlikely to appreciate in value.” As a result, unless you purchase a limited edition or are capable of transforming your car into a vintage work of art, you will receive no additional compensation.
2. Vehicle registration fees are expected to increase
While not confirmed, Top Gear Philippines reports that the cost of registering a car with the Land Transportation Office (LTO) may increase significantly in 2019. According to their source within the Land Transportation Office (LTO), “The proposed increased MVUC value is 2.5 times the vehicle’s gross weight. This could result in a significant increase in fees, which are currently calculated based on a vehicle’s weight class.
3. Purchasing a vehicle has the potential to have a detrimental effect on your credit score
Unless you pay in cash, purchasing a car will impact your credit score. Numerous these effects may be advantageous: Maintaining a spotless payment history on your auto loan can significantly improve your credit score. Additionally, a favorable credit score can assist you in obtaining a mortgage.
Establishing a payment history, on the other hand, takes time, and an auto loan does not immediately improve your credit score. And if you fall behind on your car loan payments, those late payments can have a detrimental effect on your credit score.
Car ownership can also have an effect on your credit score by altering your credit mix.
Creditors want to see that you can responsibly manage various types of debt. If you’ve only used revolving credit in the past, such as a credit card or store account, adding an installment loan to your credit history now may help you improve your credit score in the future.
Additionally, obtaining a car loan can temporarily lower your credit score. When you shop for car loans, lenders perform a hard inquiry, temporarily lowering your credit score. If you apply immediately after purchasing a car, your credit score may be slightly lower than necessary to qualify for the mortgage deal you desire.
4. Purchasing a car reduces your purchasing power when it comes to home ownership
Approval for a mortgage is not solely determined by your credit score. Mortgages are significant debt obligations—often the largest that individuals incur. Lenders want to see that you have the purchasing power necessary to make on-time and complete monthly mortgage payments.
Your purchasing power is roughly equal to the sum of your current income and debt payments. The greater this difference, the more room for a mortgage payment you have.
Purchasing a car prior to purchasing a home can significantly prevent you from being approved for a mortgage.
5. Bank Might Cancel You
Congratulations on taking the prudent step of obtaining a mortgage loan preapproval letter. However, if you take out a car loan between obtaining your preapproval and closing on your home, you may discover that your funding source has dried up. This is because preapproval is based on your financial and credit situation at the time of grant, whereas final approval is based on your situation during underwriting.
The Advantages of Purchasing a House Prior to Purchasing a Car
7. A well-located property can help you strike a healthy work-life balance
According to a 2017 study, the average Filipino spends 66 minutes per day (or 16 days per year) stuck in traffic and an additional 24 minutes looking for parking. If you invest in real estate close to your workplace, you can spend that time at home reading a book, cooking a healthy meal, or bonding with a family member, rather than stuck in traffic staring at your phone.
8. Homes are Source of Income
While ridesharing apps enable new car owners to earn money from their purchase, the industry has been a source of contention in the country since its inception. Fortunately, property rentals appear to be a more lucrative source of income for many Filipinos, with one Pinay revealing that she earns an average of P40,000 per month from short-term leases as a result of an investment in a condominium unit.
9. Depending on its location, a property’s resale value may eventually increase
By conducting adequate research on the developer and the surrounding area, as well as future infrastructure plans, you can choose a location that will benefit you in the future.
Whether your first investment is in a car or a piece of real estate, the critical factor is understanding how to maximize your returns and being financially responsible enough to maintain it properly. Finally, a risky investment that you are unsure how to manage is not worth it.
At Camella, you can own your Philippine dream home
Camella Homes, the leading housing brand in the country, offers the best locations in the country to start building your dream home in themed communities. Camella Homes is currently marketing house and lot and condominium projects in 47 cities and 168 municipalities across the country.
The brand is reimagining homes as safe havens for families, not just places to live. We immerse you in rural solitude while keeping you close to urban conveniences and transportation.
Camella is proud of the diversity of the country’s landscapes. Camella is a developer of townships that enhance your family’s quality of life.