Have you ever had to choose between buying a car and a house first? Consider the following reasons why you should purchase a house rather than a car first.
After years of working a stable job (and perhaps even getting promoted once or twice) and diligently saving a portion of each paycheck, you’ve amassed enough money to invest in something significant—a true milestone that every millennial aspires to reach. For some, the obvious choice would be to purchase a home or a car. However, taking external factors into account, which is the more prudent course of action?
Some people will make a compelling case for purchasing a car; after all, it is more affordable, easier to maintain, and more convenient. Having a car provides a sense of independence and excitement, as well as the assurance that you can get wherever you want to go without relying on anything other than your own sense of adventure.
However, given today’s market conditions, rising gasoline prices, and deteriorating traffic conditions, is a car truly the more practical option? Consider the following reasons why purchasing a home may be a more prudent initial investment:
1. The value of a car depreciates over time
As Forbes notes in an article, “an automobile is a depreciating asset.” It rapidly depreciates in value as it ages. There is a slim chance that a car used for personal transportation will appreciate in value.” Therefore, unless you purchase a limited edition or are capable of transforming your car into a vintage work of art, no one will pay you more than your initial investment.
2. Annual vehicle registration fees are expected to increase
While this has not been confirmed, Top Gear Philippines reports that the cost of car registration with the Land Transportation Office (LTO) may increase significantly in 2019. According to their source within the Land Transportation Office (LTO), “the increased MVUC currently being proposed is 2.5 times the gross weight of a vehicle. This could represent a significant increase over current fees, which are determined by a vehicle’s weight class.
3. Purchasing a Car Can Have an Effect on Your Credit
Purchasing a car will have an effect on your credit—unless you pay cash. Several of these effects may be beneficial: Having a spotless payment history on your auto loan can do wonders for your credit score. Additionally, a favorable credit rating can assist you in qualifying for a mortgage.
However, it takes time to establish a payment history, and an auto loan will not immediately improve your credit score. And if you’re not making timely payments on your car loan, those late payments can have a negative impact on your credit score.
Another way in which purchasing a car can have an effect on your credit score is by altering your credit mix. Creditors want to see that you can responsibly manage various types of debt. If you’ve only ever used revolving credit, such as a credit card or store account, adding an installment loan may help you improve your credit score in the future.
Additionally, the act of applying for a car loan can temporarily lower your credit score. When you shop for car loans, lenders conduct a hard inquiry, which can temporarily lower your credit score. This may result in your credit score being slightly too low to qualify for the mortgage deal you really want if you apply immediately after purchasing a car.
4. Purchasing a car reduces your purchasing power when it comes to a home.
Approval for a mortgage is not solely dependent on your credit score. Mortgages are significant debts—often the largest debt obligation that individuals incur. Lenders want to see that you have the purchasing power to make on-time and full mortgage payments each month.
Your purchasing power is essentially equal to the difference between your income and current debt payments. The greater this gap, the more space you have for a mortgage payment. This figure is also known as your debt-to-income ratio.
Purchasing a car prior to purchasing a home can significantly alter those numbers, preventing you from being approved for a mortgage.
5.Your Preapproval Could Expire
If you took the prudent step of getting preapproved for a mortgage loan, congratulations. However, if you obtain a car loan between receiving 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 it is granted, whereas final approval is based on your situation at the time underwriting occurs.
The Advantages of Purchasing a House Before Purchasing a Car
There should be a lot of reasons why you also need to buy a house or condo as your home and these are just amongst the main reasons why you need to consider buying a home before a car in your lifetime.
6. Properly located property can help you maintain a healthy work-life balance
According to a 2017 study, the average Filipino spends 66 minutes a day (or 16 days a year) stuck in traffic and another 24 minutes looking for parking. If you invest in real estate near your place of employment, that time can be spent at home reading a book, cooking a healthy meal, or bonding with a family member, rather than stuck in traffic with your eyes glued to your phone.
7. You can turn it into a source of passive 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 the concept arrived. Fortunately, property rentals appear to be a more lucrative source of income for many Filipinos, with one Pinay sharing that she earns an average of P40,000 per month from short-term leases due to an investment in a condo unit.
8. Depending on the location, a property’s resale value may eventually increase
If you conduct sufficient research, not only on the developer, but also on the surrounding area and future infrastructure plans, you can choose a location that will help you profit in the future. Additionally, nearby highways, convenience (it’s no secret that townships are making waves in the real estate scene), fault lines, parking, and the condition of nearby developments should be considered.
Whether you choose a car or a piece of real estate as your first investment, the most critical aspect is understanding how to maximize your opportunities and being financially responsible enough to maintain it properly. Finally, an investment that you are unsure how to manage is not a risk worth taking.
Own your dream Home in the Philippines at Camella
The Philippines leading housing brand, Camella Homes, offers the best locations in the country to start your dream home in themed communities. Presently, Camella Homes offers house and lot and condo for sale projects located in 47 cities and 168 municipalities in the country.
The brand is focused on transforming residences into safer spaces for families, rather than simply places to live. We immerse you in rural solitude while keeping you close to city conveniences and accessibility.
Camella is proud of the varied scenery found throughout the country. Each of its townships is strategically located near business districts, transportation hubs, schools, general stores, shopping centers, clinics, churches, and attractions to ensure the best possible living experience for its residents. Camella is a developer of townships that help your family live a better life.