BSP Warned Against Zero-Downpayment Schemes on Real Estate Purchase

With the boom of real estate development in the country, Filipinos have more access and better options to properties such as condominiums, single-family units, and townhomes. To entice potential homeowners into buying properties, realtors come up with different gimmicks such as discounts, freebies, and others. Currently, one of the most common promos offered by real estate companies is the zero-percent downpayment, allowing buyers to purchase properties without paying a certain portion of the total contract price upfront.

Read: (What Are The Things You Need To Know When Applying For Home Loan?)

However, a renowned financial adviser warned against the possible financial dangers brought by removing the downpayment in the process of purchasing real estate properties, citing that many financial pitfalls may ensnare buyers in the future.

On ANC’s On The Money, in-house financial adviser Salve Duplito warned against the dangers of entering zero-downpayment schemes. According to the show’s resident financial expert, the upfront cash payment—which is usually at around 20 percent—protects buyers from multiple financial pitfalls.

“Without a 20 percent downpayment, buying a house seems more achievable. But there’s a high likelihood that’s an illusion buyer will discover as the years go by. And the result of that illusion—foreclosure—can be very painful,” Duplito said on the program.

“What most people don’t realize is that the 20 percent downpayment rule is their protection from foreclosure it lightens their mortgage, it reduces pressure on their cash flow, and it’s a litmus test of whether they are ready to buy that house or not,” she furthered.

According to Duplito, the waivering 20 percent downpayment was one of the main reasons why the economy of the United States crashed in 2008. With the aggressive marketing techniques practiced by real estate sellers, they are willing to forego of the downpayment in exchange of contract prices higher than the usual. As a result, some buyers weren’t able to keep up with their payments and their homes were foreclosed.

To make sure that all standards are met in terms of approving loans for real estate purchase, the Bangko Sentral ng Pilipinas is beefing up the policies regarding the said concern.

To avoid these unfortunate scenarios caused by zero-downpayment schemes, the Bangko Sentral ng Pilipinas enforced tighter grip on real estate loans to make sure that the economy won’t be affected by unhealthy practices in real estate selling. One of the methods to be enforced by the agency is the proper and thorough checking of the real estate loan applicant’s cash flow and capacity to pay instead of focusing on the collateral during credit evaluation.

Let’s make it simple: if you can’t afford 20 percent payment for a house or condo, it’s not yet time for you to buy that property. Don’t be in too much of a hurry; the deals will get better,” Duplito concluded.