A house is a basic human necessity just like food, water, and the natural environment. It provides safe shelter, a sense of well-being and security, and a firm standing to be economically stable. However, not every person is fortunate enough to acquire a dream home because of the increasing prices and taxes for buying property and building materials. Thus, it requires a lot of planning, financial management, and an extensive cycle of strategy-making to buy a property and build a dream house. Yet, several ways can help a buyer to finance a home purchase.
A typical house financing deal revolves around the process of taking out a loan from a financial institution. As Pakistan is one of the developing economies, it becomes harder for a middle-class family to own a house. Yet listed below are the most common and feasible ways to finance a house purchase in Pakistan, along with their pros and cons.
- Acquiring a bank loan
There is a lack of many house financing options in Pakistan; however, banks are the major lending organizations to acquire a property loan. Each bank has different criteria to provide different amounts of property loans. A conventional property loan might require the lender to provide an undertaking in a documented form that the lender will be able to pay off the debt within the specified amount of time.
- Pros
Being the sole feasible option, acquiring a property loan from banks is the only reliable option for house financing in Pakistan. Banks provide nearly the exact amount of loan to a lender which the buyer needs for buying a property. It might not be possible to acquire a huge amount of money in the form of a loan when the lender chooses any other option instead of a bank loan.
- Cons
The bank loan process is extensively stressful, especially when it comes to the documentation stages. The documentation process is usually technical and difficult for uneducated citizens to understand, due to the complex financial jargon and key terms. The bank might also ask for non-achievable proofs of income or mortgage of other properties in return for a small amount of loans. The interest rates are usually higher, which can entrap the lender into a vicious cycle of poverty.
2. Applying for a mortgage
Another yet traditional way of acquiring a property in Pakistan is to use mortgage financing. In this form of financing, the lender uses a valuable asset (most commonly, another property or the house to be bought) as a guarantee to acquire a loan to buy a house. There are different conditions on which a creditor can lend money to the lender; however, paying the debt with monthly installment along with a specified interest rate is the most common condition.
- Pros
A traditional mortgage financing process is easily comprehendible, which involves lesser documentation and technicalities. Therefore, it is a “go-to” option for uneducated people, having less information about the banking system. In this system, the creditor can also be a close relative, who would provide the debt on easier terms than that of a bank.
- Cons
The interest rates might be higher, as much as a bank. The poor documentation process might also cause issues, both for the creditor and the lender. The creditor might also use illegal and torturing ways to pressurize the lender for the speedy recovery of the debt.
3. Qualifying for a government loan
Pakistani government might also provide home loans to the citizens. Although this option is available to some extent in each regime, yet the eligibility criteria are quite strict. In the present regime, the government’s Naya Pakistan Housing program is a project which is aimed at providing affordable housing loans to the lower economic classes of the country.
- Pros
Generally, such schemes are based on the philosophy of providing feasible house financing options. The loans are usually credited on the basis of lesser interest rates. The lending process is not as complex as that of a bank loan process. There is a possibility to be easily selected for the loan provision and a lesser chance of rejection for an applicant’s appeal for a loan, once the applicant fulfills the eligibility criteria.
- Cons
Due to a sudden political shock and regime change, a housing project might come to a halt. As there is a prevailing political instability and uncertainty in Pakistan, therefore, citizens are less likely to depend on a government’s housing project to acquire loans for house financing.
4. Finding an investor or private creditor
A traditional option for house financing in Pakistan is to secure a loan from friends, family, colleagues, or trustworthy people.
- Pros
These types are loans are usually provided by the creditors on the basis of zero-interests rates. The process does not require extensive documentation and technical understanding. The creditors might also offer the debt for an unspecified amount of time, which provides a sense of mental peace for the lender.
- Cons
Due to the lack of documentation, the creditor or lender might fall prey to money scams and frauds. Similarly, due to a lack of a well-written agreement, a lender might not be in a position to pay off the debt when the creditor asks for its return. Since a time limit is specified initially, the lender might take many years to return the money to the creditor.
