Most of us would like to own properties, whether for own stay or for investment purpose. Owning a property comes with many costs. Below are 3 key points every first-time house buyer should know:
(1) How much down payment should I prepare?
When you purchase a property, you are normally required to pay a total of 10% of the purchase price as down payment: first you pay an earnest deposit equivalent to 2% of the purchase price upon ‘booking’ the unit, and balance 8% subsequently upon execution of SPA.
Property price = RM800,000
10% down payment = RM80,000
So, if you are preparing to buy a property at RM800,000, make sure you have RM80,000 to pay for down payment.
(2) How much can I borrow from bank?
If you have sufficient to pay the 10% down payment, congratulations! What about balance 90% of the purchase price?
Unless you are born with a silver spoon in your mouth, else you will require financing from banks for the balance 90%. So, the next question to consider is, whether the banks are willing to lend money to you? And if they do, how much are they willing to lend to you?
The loan amount you can get depends on the monthly instalment you can service. How do bank assess how much you can afford to service monthly? They calculate based on your personal debt service ratio (DSR). DSR refers to your total monthly debt repayment obligation (example existing housing loan, car loan, personal loan, PTPTN etc) divided by your net take home pay (your net pay after deducting tax and EPF). General guide line from Bank Negara is that bank cannot lend to an individual more than 60% of his DSR.
Net income = RM6,000
DSR @60% x RM6,000 = RM3,600
In this Example B, this borrower can afford to service a monthly instalment of RM3,600.
For a loan amount RM200,000 at interest rate of 4.35%, loan tenure of 30 years, monthly instalment is about RM1,000. Using above Example A, the borrower would be able to get a loan amount about RM 720,000.
The younger you are, the longer loan tenure you can enjoy. For Malaysia’s context, bank is willing to give out loan for a tenure of 35 years or up to 70 years old, whichever earlier. It goes without saying that the longer your loan tenure, the lower is your monthly instalment. However, it also means that you will end up paying more interest compare to someone whose loan tenure is 20 years.
(3) What are other costs involved?
Apart from the 10% required for down payment, a purchaser will incur following transaction costs:
– (i) Legal fees, disbursement and stamp duty on Sales and Purchase Agreement (“SPA”); and
– (ii) Legal fees, disbursement and stamp duty on loan agreement
As a general of thumb, the above (i) & (ii) will cost about 4% of the purchase price. Assume if the property is selling at RM800,000, you will need to prepare roughly RM32,000 for these transaction cost.
Other than transaction costs on SPA and loan agreement, purchasers who are buying into existing houses shall also prepare funds for renovation.
Purchasing a property is the most expensive ticket item to most people. Property price is also said to be beyond reach of most younger generation. Having said that, why not take advantage of attractive promotion package being offered by property developers now? Most of them are giving crazy rebate to help purchasers on down payment! Other freebies like legal fee on SPA and loan agreement being absorbed by developers are also very commonly seen now. So, do take advantage of this rather soft market to own your first home!