Spot Cash Down Payment: Is it a Good Idea?

Securing a house and lot in the Philippines is a milestone that many Filipinos look forward to accomplishing. Whether it's newlyweds who want to start a family in their own home, or young-adult children who want to give back to their parents with a house and lot, a property purchase is a momentous financial accomplishment.

But still, a home purchase is not going to be just a long walk in the park. It is a tediously long drive with a few major bumps on the road, so to speak.

The first and major factor to fulfill is money for a down payment, not to mention monthly payments, future repair and maintenance costs, and other fees. And since a residential property is doubtless a large purchase, the down payment is expected to make you shell out a substantial amount of money.

In consequence, aspiring real estate property owners look for and are offered excellent alternatives that would best fit their current financial situation and still be able to secure the affordable house and lot of their dreams.

If you have more than enough money to buy a property outright, we bet you've heard about spot cash down payments, which cater more to property buyers who can offer a relatively higher down payment amount to avail of discounts and other benefits. In this article, we'll discuss and learn more about spot cash payments and whether this is the ideal down payment scheme for your property purchase this 2023.

3 Ways to Finance a Property Purchase

Before we go straight to spot cash down payment schemes, it is also important what other down payment methods or financing are available. When purchasing a condominium or an affordable house and lot for sale, there are three ways to help you secure a property purchase. Besides spot cash payment, these are as follows: deferred cash and long-term financing.

• Long-term financing. Commonly offered by real estate developers, long-term financing takes the longest to pay for but would allow homebuyers to pay relatively low monthly amortization for up to 30 years of payment terms. However, this also means having to pay for many, many years with higher interest rate payments.

• Deferred cash payment. This financing type is ideal for buyers who don't want to be financially inconvenienced by high interest rates. So they resort to deferred cash payment where the payment term will last only a few years; an installment payment without both interest rates or discounts.

• Spot-cash payment. With a required down payment of 10 to 20 percent of the total contract price, homebuyers negotiate for half spot cash and the other half would be for the spread-out home down payment. After paying the reservation fee, the buyer can now pay half of the required total down payment and reduce the monthly down payment.

The Advantages of a Spot Cash Down Payment

There is no denying the legitimate advantages that opting for spot cash down payment brings. Below are just some of its best benefits for property buyers.

Lesser mortgage balance

One of the top benefits of spot cash payments is reduced mortgage balances. This is a result of a higher down payment than what is required, and therefore positively affects your overall monthly mortgage payments or balances and enjoy discounts.

Faster transactions

Offering a higher down payment gives lenders and developers the impression that you have the financial capability and creditworthiness necessary to be deemed worthy of a property purchase approval. This results in faster transactions with no additional supporting documents required from you, since the down payment amount you are about to pay seals the deal.

Reduced interest costs

Lending institutions charge higher interest rates to borrowers and homebuyers deemed risky. This is already apparent when a buyer offers a lower down payment. With it, the buyer will be charged higher interest rates. This is in addition to more time that the property will be paid in full amount. Hence, opting to pay spot cash will result in lower interest costs, making it such an attractive financing option for buyers.

Lower premiums for mortgage insurance

Mortgage insurance is required by lenders to cover payments of a property owner in the event of a loan default. Mortgage insurance is also required for borrowers who are considered high-risk. This is determined through the calculation of the loan-to-value (LTV) ratio. The higher it is, the higher the interest rates lenders will charge. But for spot-cash buyers, this will entail lower premiums on their mortgage insurance on top of lower interest costs.

Practice financial discipline

As mentioned, coming up with a higher down payment will not be easy. As such, this can be made as a source of motivation to develop money-saving hacks to help you achieve your savings goals allocated for a house and lot and their down payment. What's more, it will be less difficult if you are highly motivated and equipped with a plan to achieve your financial goal.

Disadvantages of a Spot Cash Down Payment

On the other hand, there are two top disadvantages that a spot cash payment may bring prospective homebuyers. Hence, it is extremely vital to weigh these pros and cons for you to come up with a smart investment decision.

Delayed property purchase

To have the necessary amount to afford a spot cash payment, this might mean having to delay your property purchase for a year or two. Most Filipinos have to save up money for years to afford an outright cash payment for large purchases. But if you're willing to wait and delay your dream house a bit more, then this is not so much of a disadvantage.

Adverse impact on your other financial obligations

Coming up with a higher down payment to prioritize your property purchase also means unintentionally compromising your other financial obligations. This means you will have fewer savings left for an emergency fund. It will also result in reluctantly scrimping on your monthly expenses as most of your savings have been allocated to make a higher down payment. Remember that offering a higher amount has its benefits, but this should not be made at the expense of your other bigger financial obligations.

At Lumina Homes, we offer flexible payment terms to help you come up with the best financing step you can take that is suitable for your current financial circumstances. You have the option and choice to apply for a housing loan through Pag-IBIG and enjoy payment terms of up to 30 years. You can also opt for bank financing and enjoy lower interest rates with a higher loanable amount compared to Pag-IBIG. When all else fails, you can apply for in-house financing directly with us.

Whichever is your financing preference, rest assured that a house purchase through Lumina Homes is worth shelling out your hard-earned money to. We have over 50 housing projects nationwide, all of which are conveniently located in neighborhoods with proximity to schools, malls, marketplaces, hospitals, and local government offices, among others.

In our Properties section through this website, you can also make use of a mortgage calculator to obtain an estimated computation of your preferred Lumina property in your desired location. Under financing type, spot cash is one of the options alongside bank, Pag-IBIG, and deferred payments.

Ready to seal your own house and lot in the Philippines this 2023? Make your house and lot dream come true with Lumina Homes — an affordable housing provider serving Filipino families to achieve homeownership for more than 10 years.