Due to the recent hike of property prices, owning a home had become more challenging. I am glad that I bought my first house as soon as I could. But it is not so lucky for the tenant who is staying at the very first house I bought in Penang. When I moved to a bigger one, I was trying to sell off the old home. A couple made an offer. But finally they settled in with a tenancy due to reasons unknown to me.
Recently, a couple years later, I just sold this property where the same couple is still renting. Thanks to their decision to rent rather than to buy it outright, I managed to sell it at a price 34% higher.
How about you? If you are not yet a homeowner, you’ll find that buying your first home may be one of the most exciting events in adult life.
- Five Financial Must-Haves for First Time Home Buyer in Malaysia - Infographic
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Here are five financial prerequisites that are musts before you sign on the Sales and Purchase Agreement (SPA).
1. Have adequate Down Payment
Whether you are buying directly from developer or from seller at the subsale market, you must have the down payment of 5-15%.
The first step of buying after you’ve identify your desired house, is to sign the booking form and pay 1-2% earnest deposit, or the booking fees. This will allow 14 days for you to arrange for SPA signing. Upon signing the SPA, you will be required to pay the remaining down payment that adds up to the total of 10%.
After that, you’ll need to finance the rest of the purchase price with a bank loan, assuming that you don’t have the ready cash to pay in full. In some cases, depending on the type of the property and your credibility, you may get lower or higher financing margin compared to the industry standard of 90% financing. If the banks only lend you 85% of the purchase price, you will need to fork out another 5% for the difference.
Of course, there are cases with literally no money down. But you will still be required to fork out the down payment and get it back in short term period due to some smart negotiations, special discount or rebate from developer, or creative financing. So the first financial must is to have 5-15% of the down payment accumulated.
2. Estimate How Much Can you Borrow
After you’ve got your down payment ready, the next thing you want to find out is how much installment you can afford to fork out every month. This will determine how big the loan amount you can take.
Nowadays, banks are getting more stringent.Your loan servicing affordability is assessed by calculating your personal Debt Service Ratio (DSR). DSR is equal to your total monthly debt repayment obligation, divided by monthly take-home income (that’s after tax and EPF contribution). Bank Negara requires the bank not to lend borrower more than 60% DSR.
In other words, if your take home pay is RM5000/month, you will be able to serve a loan payment of RM3000. However, it is really not recommended to go for the limit. I would recommend that you keep your DSR under 30%. And this 30% should also include your car loan.
Depending on the loan tenure, the younger you are, the longer term you can take, probably up to 30-40 years to completely pay up the mortgage. At the current interest rate of about 4.3%, and 30 years loan tenure, a monthly payment of RM1000 can serve a loan amount up to RM200,000.
After knowing how much you can borrow, the next financial must have is to understand how much you can really afford to pay every month.
3. Understand How much Can you Afford
When you have your own home, there are other related expenses that comes with it, other than the monthly mortgage installment. First, is the maintenance fee if your property is in a gated and guarded community, or a high rise building. Secondly, you will also need to pay yearly fire insurance premium, quit rent and assessment. Thirdly, there are also regular expenses such as Indah Water Konsortium, water and electricity bill, not mentioning the initial deposit for all these utilities.
Therefore, you’ll need to understand that your expenses will increase when you are staying at your own house, comparing to staying with your parents or renting a place. So how much exactly can you afford? A thorough calculation is recommended.
4. Transaction cost
When making a home purchase, there are also other one time fees that can’t be neglected. You may need to pay real estate broker commission who helps you hunt for houses. There are also legal fees involved to prepare the SPA and also the loan agreement.
Besides that, the biggest amount of all is the stamp duty payable to the government.
SPA Stamp Duty Rates:
First RM 100,000.00 = 1%
Next RM 100,000.01 - RM 500,000.00 = 2%
Next RM 500,000.01 - RM 2,0100,000.00 = 3%
Above RM 2,000,000.00 = 4%
Meanwhile, the loan agreement stamp duty rate is 0.5% for any amount.
So all these transaction expenses can add up to a total of about 5% of the purchase price, easily.
5. Get ready with Renovation and Furnishing Cost
After the house keys are handed to you as the proud new homeowner, you will get to do more alteration and enhancement, which will definitely incur some renovation and furnishing.
You can always decide the enhancement that suits your budget. No matter how frugal you are, there will be some basic furnishing required before you can stay comfortably in your new home. So get ready with a minimum fund to cover this inevitable expense.
Buying your own home is probably one of the biggest and most important financial decision in your life. Some people depleted all their accumulated savings after the purchase. Some even incur more consumer debts when they swipe credit cards and opt for installment payback to furnish their home.
However, at the end of the day, it is a different feeling, which is more towards satisfaction and fulfilment when you are able to stay in a property that has your name in the ownership title.
Happy house hunting!