Saving for a House vs. House Loan – What’s Your Best Move?

Nowadays, buying a house not only means shouldering a substantial price tag. For many first-time home buyers, they are also addressing an emotional need to establish roots and fulfill a sense of belongingness. But before moving in, there’s always the question of how to pay for your purchase. So which is the better play: saving enough money to buy a house or taking out a house loan? 

Cold, hard cash to pay for your dream home is on everybody’s wish list. The fantasy includes walking into a housing project, handing over a suitcase of money to a delighted realtor, and moving in your belongings on the same day. So for those with money to buy a house and even more money to spare, you shouldn’t have any problems with this dilemma.  

Plenty of factors will come into play once you decide to pursue your dream of owning a home. However, the uniqueness of your requirements and your situation can best answer that question. But before you do so, let’s look at the pros and cons of each option. 

Saving Money For Your Dream Home

While it takes time to amass significant savings to buy a house, your patience will be worth it once you hold the keys to your new home. The accomplishment goes beyond the act of buying the house. There’s also the euphoria of knowing that you can enjoy your new property free from the clutches of creditors who issued a house loan. More importantly, you managed to avoid paying interest for the next few years. A cash payment after years of saving up can be one of life’s ultimate accomplishments. Those who toiled for years on a house loan can experience the same euphoria, but only after they finish paying off the debt.  

In the process of saving for your dream home, you’ll also develop certain values that can help you with other aspects of your life. You’ll learn the discipline of holding off purchases until you can afford it. Hopefully, you’ll also pick up the habit of not just saving but investing your money to make it grow faster.

Drawbacks when Opting to Save Money

While saving money to pay for a house in cash is a great end game, it doesn’t always turn out the way you want it to. For example, Inflation can reduce your savings’ value significantly over time. One million pesos in today’s economy may be worth less in ten years.  

Another drawback of the saving strategy is that you tend to pass on available properties that fit your requirements. Your choice location might be offering pre-sold units at the moment. However, you won’t find the same kind of properties ten or twenty years down the line. Even worse, you’ll find your dream location saturated with developments. That’s because real estate values rise over time. By the time you hit your target goal, you’ll likely discover that property prices have gone up, prompting you to save even more to catch up. 

Finally, using cash only makes sense if you have more than enough. Blowing your entire fortune on a piece of property can ultimately bankrupt you. An accident or sickness, job loss, or even a bad run of investments means you’ll need liquidity. If all your money is tied up with your house, you’ll need to sell it to withstand the next few months.

Taking a House Loan for Your Dream Property

While popular myth labels debt such as a house loan as a burden, some benefits come with borrowing money. For instance, a loan can help you keep most of your money intact in case something comes up. Once you establish the fixed rate you need to pay your mortgage, you can still allocate the rest of your earnings to your other needs such as tuition for the kids, health and wellness expenses,  or annual family vacations. 

Similar to paying in cash, taking out a house loan also instills discipline on the part of the home buyer. Mortgages will need regular payment, so it’s up to the buyer to ensure that the mortgage gets paid no matter what. Do that for the next few years and you’ll develop the habit of fiscal responsibility. 

More importantly, loans allow you to invest in the present. The house you want now won’t be available within a few weeks or months. You might as well lock it up in that condition and at a price you can afford. For would-be property investors, loans allow you to invest in pre-selling properties at potential locations. If you’re correct in betting that the area will develop, the gains you’ll receive in the future will far outweigh any interest you paid for your loan.

The Drawbacks of Taking a House Loan

Honestly, a loan is a loan. Unless you finish paying off your house loan, it will take a significant bite out of your paycheck. At the same time, ownership of your new property will always have an asterisk until you drop the final installment. If by chance things happen that prevent you from paying your house loan regularly, you can suffer the indignity of defaulting on your home. 

Another drawback depends on where you placed your investment. Some locations’ values may depreciate over time due to factors such as natural disasters (floods, earthquakes, etc,), overcrowding, or degentrification. You may find yourself paying an expensive, long-term loan even as your property’s value goes down. 

Finally, house loan approvals aren’t a guarantee. Many would-be homeowners will need to present themselves as ideal customers to banks and lending institutions in order to qualify. Any instances of insufficient means or income, current financial problems, or past delinquent records are more than enough reasons for banks to reject a house loan application.  

Whether You Want to Save or Take Out a House Loan, Ohmyhome Has You Covered

So, which is better? Paying in cash or taking a house loan? As we said, your particular financial situation and your needs will always answer the question for you. But in cash if you have more than enough lying around. Take a loan if you can afford the monthly mortgage and prefer to stay liquid. A good balanced approach is to save enough for a downpayment.

For most developers, this means 20% of the total contract price. If you have more to spare for your down payment, you can do so by all means. If nothing else, a bigger DP lowers your monthly payments or reduces the number of years to pay. You get to enjoy the best of both worlds while admiring your new home.  

Whether you prefer cash or loan, you can always count on Ohmyhome to show you the properties worth investing in. Instead of going from one developer to another, Ohmyhome lists thousands of properties from over 200 of the Philippines’ top developers. Even better, the property tech platform features an easy-to-use search tool that allows you to search for properties based on your specific location, house type, turnover date, and budget requirements.

Once you find your dream home, Ohmyhome’s team of real estate professionals will help you get the best deals, source the best financing options, and walk you through the documentation process. Start your home-buying experience on the right note! Sign up for a free Ohmyhome account today!