HAPPY APRIL 15th!
Before I start, I want to wish my fellow CPAs, accountants, tax preparers, and other financial service people a “Happy Tax Day (April 15)”!
Work was long and arduous this year (with all of the new and strange tax provisions), but you’ve survived. Have a Happy 4/15!
Now, here’s this week’s article. . . .
Over the past few weeks, Live in the Philippines Web Magazine showcased a couple of “dream houses” in The Philippines. The articles and their accompanying pictures stirred up some thought and
generated a few comments and questions. Several readers expressed a desire to own their own place here in the islands.
Aside from the “if only’s” (“If only I could [fill in the blank].”), some questions focused on money. “How would I pay for it?” “Can I finance it or do I have to pay cash?” Very valid questions asked at the most proper time – before starting construction or house hunting. They are very difficult questions, too.
Traditionally, a house is constructed or purchased for cash, worldwide. The affluent among us may have the cash available. The rest of us will look to borrowing. In many countries, home mortgage loans are available to provide the cash payment at the final handshake.
Regardless of the options available to you locally, in The Philippines “Cash is King.” Banks and lending agencies do offer home mortgage loans, but will normally shun enquiries from a foreigner. Interest rates are high, loan lives are short, amounts that you can borrow are limited, and the paperwork and red tape are limitless.
I’ll be honest with you: It is very difficult for a foreigner to obtain a home mortgage loan.
There are housing developments springing up around the country. Though primarily aimed at Balikbayans and OFWs, foreigners can “buy in” as well. That means sacrificing personal artistic flair for that of the developer. (You can choose from Model A, Model B, and so on.)
Almost no banks or lending institutions in a foreigner’s home country will provide a home mortgage loan secured by property outside of that home country. For them, providing individual consumer financing for foreign real estate is just not going to happen.
Not having cash in hand and not being able to obtain a home mortgage loan from a local or Philippine bank should not crush your dreams. Other, “non-traditional” methods of obtaining and using cash may be worth considering.
“Cash strapped” potential homeowners in The Philippines may want to consider “outside the box” financing. A non-traditional method of financing your dream house, or a combination of non-traditional methods, may be the answer to your finance questions.
Whether building or buying: The name of the game is Cash Flow.
Here are a few non-traditional financing methods to ponder:
- Relatively Speaking – You may be able to obtain cash from relatives through personal loans, gifts, etc. If you do borrow money, make it formal with a loan agreement. Include the prevailing interest rate and life of the loan, just as if you are borrowing from a bank. Additionally, record the reason for borrowing in the agreement, and spend the money ONLY for that purpose.
- Credit Where Credit Is Due – Periodically, larger credit card companies offer reliable cardholders cash advances at ridiculously low interest rates (even 0%). Using such an advance for your house construction or purchase is just like having a below-market mortgage (the kind that the very affluent obtain for their mansions). Take care in making monthly payments, as poor payback performance can either jump that interest rate into the 20%-30% range or, worse yet, make your total outstanding balance on that particular credit card due immediately.
- Insurance Help – Normally, you can borrow against a whole-life insurance policy an amount up to a stated percentage of the policy’s current cash value. Interest rates for these loans are at market level. Often, you can arrange to make annual interest-only payments until you pay back the loan’s principal and remaining interest due. If something happens to you prior to loan payback, your beneficiary will receive the face value of your policy less any outstanding loan balance.
- Sign Here – You may be able to swing a signature loan from your bank or other financial institution. Interest rates for this and other unsecured loans are nominally higher than most other types. Financial institutions will check your credit history a little closer when you apply for a signature loan. If you’re thinking of one, make sure that the loan payments will fit into your budget before you borrow.
- Quid Pro Quo – (Latin for “This for that.”) You may be able to obtain certain items for your dream house through negotiations and barter. Trading your personal sweat and labor, or some item you seldom use but others may have an interest in, for house materials could help. The most common form of quid pro quo is a second job (trading labor for wages).
- One Man’s Junk – Garage sales may help provide a source of cash, plus help you get rid of unused items that you no longer need or will not want to ship with you to the islands. It sounds a little corny, but they must work – many people have them.
These are some of the options available for helping finance that dream house in The Philippines. Of course, not everyone can enjoy every option – having a poor credit history can put the damper on a lot of the options. Still, other methods exist. If this topic is of interest to you, further researching “creative” or non-traditional financing may be your next step.
The author and Live in the Philippines Web Magazine do not promote or endorse any of the financial methodologies presented in this article. We have not received remuneration for mentioning any of the methods discussed. We present the methods described herein as information only. Readers are encouraged to further research these and similar methods prior to considering their use. If in doubt, we recommend that readers interested in non-traditional finance check with a professional personal finance counselor prior to engaging in any financing activity.