Have you ever been forced to choose between purchasing a car and a home? Consider the following reasons why you should prioritize purchasing a home over 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 milestone that every millennial aspires to reach. For some, the natural course of action would be to purchase a home or a vehicle. However, when external factors are considered, which course of action is the more prudent one?
Certain individuals will argue persuasively 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 adventure, as well as the assurance that you can get wherever you want to go using nothing but your own sense of adventure.
However, given the current market environment, rising gasoline prices, and deteriorating traffic conditions, is a car truly the more practical option? Consider the following reasons why buying a home may be a wiser initial investment:
Over time, the value of a car depreciates.
According to Forbes, “an automobile is a depreciating asset.” Its value rapidly depreciates as it ages. A car used for personal transportation has a slim chance of appreciating 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 compensation beyond your initial investment.
The annual registration fee for vehicles is expected to increase
While this has not been confirmed, Top Gear Philippines reports that the cost of registering a car with the Land Transportation Office (LTO) may significantly increase in 2019. Their source within the Land Transportation Office (LTO) stated that “The proposed increased MVUC is 2.5 times the gross weight of a vehicle. This could result in a significant increase in fees, which are currently determined by the weight class of a vehicle.
Purchasing a vehicle can have a negative impact on your credit score
Unless you pay cash, purchasing a car will have an effect on your credit. Numerous these effects could be beneficial: Maintaining a spotless payment history on your auto loan can help boost your credit score significantly. Additionally, a good credit score can help you qualify for a mortgage.
However, establishing a payment history takes time, and an auto loan will not immediately boost your credit score. And if you’re not keeping up with your car loan payments on time, those missed payments can have a negative effect on your credit score.
Another way that car ownership can affect your credit score is by altering your credit mix. Creditors want to see that you can manage various types of debt responsibly. If you’ve only ever used revolving credit, such as a credit card or store account, adding an installment loan to your credit history may help you improve your credit score in the future.
Furthermore, applying for a car loan can temporarily lower your credit score. When you shop for car loans, lenders conduct a hard inquiry, lowering your credit score temporarily. If you apply immediately after purchasing a car, this may result in your credit score being slightly too low to qualify for the mortgage deal you really want.
Purchasing a car decreases your purchasing power when it comes to purchasing a home
Mortgage approval is not solely based on your credit score. Mortgages are substantial debt obligations—often the largest debt obligation that individuals incur. Lenders want to see that you have the purchasing power necessary to make monthly mortgage payments on time and in full.
Your purchasing power is roughly equal to the difference between your current income and debt payments. The larger this difference, the more room you have for a mortgage payment. This is also referred to as your debt-to-income ratio.
Purchasing a car prior to purchasing a home can significantly alter those figures, preventing you from receiving a mortgage approval.
Your Preapproval Might Be Terminated
Congratulations on taking the prudent step of obtaining preapproval for a mortgage loan. If you obtain a car loan between obtaining your preapproval and closing on your home, however, you may discover that your funding source has dried up. This is because preapproval is granted based on your financial and credit situation at the time of grant, whereas final approval is granted based on your situation at the time of underwriting.
The Benefits of Purchasing a House Before a Car
A strategically located property can assist you in achieving a healthy work-life balance.
A 2017 study found that 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, 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.
You can use it to generate passive income
While ridesharing apps enable new car owners to earn money from their purchase, the industry has been fraught with controversy in the country since its inception. Fortunately, for many Filipinos, property rentals appear to be a more lucrative source of income, 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 condo unit.
Depending on the location, the resale value of a property may eventually increase
By conducting adequate research, not only on the developer, but also on the surrounding area and future infrastructure plans, you can select a location that will benefit you in the future. Additionally, nearby highways, convenience (it’s no secret that townships are reshaping the real estate landscape), fault lines, parking, and the condition of adjacent developments should be considered.
Whether you choose a car or a piece of real estate as your first investment, the critical factor is understanding how to maximize your returns and being financially responsible enough to maintain it properly. Finally, an investment that you are uncertain about managing is not worth the risk.
At Camella, you can own your dream home in the Philippines
Camella Homes, the country’s leading housing brand, offers the best locations in the country to begin building your dream home in themed communities. Camella Homes currently has house and lot and condo projects for sale in 47 cities and 168 municipalities throughout the country.
The brand is committed to transforming homes into safer spaces for families, not just places to live. We immerse you in rural solitude while maintaining close proximity to urban conveniences and accessibility.
Camella is proud of the country’s diverse landscapes. Each of its townships is strategically located near business districts, transportation hubs, schools, general stores, shopping centers, clinics, churches, and attractions, ensuring that its residents have the best possible quality of life. Camella is a developer of townships that enhance the quality of life for your family.