If you are sick and tired of renting a house, perhaps it is time to take the plunge into the property pool as a first-time owner. But what kind of property and at what price point should you consider purchasing?
Once you have decided to get your first home, you need to determine how expensive a property you can afford.
However, to determine your housing affordability isn’t always easy. Can you afford the brand new condominium near the city? Or can you only afford an apartment in the suburb?
How much cash do you need to have to purchase a RM300,000 property? Will you be able to afford the down payment or the monthly repayment with your current income?
Housing affordability is a sore point for many Malaysians who can only dream of owning a house to call home due to the surging property prices in some areas. Before you start scouring the property listings, take a cold hard look at your finances and decide how much you can realistically pay.
Which price point should you be looking at?
To determine an affordable price point for your first property, there are a few things you need to consider. Some of these considerations include, your monthly income, cash amount you have available, and how much you can borrow.
Your loan amount depends on a number of things, including the market value or purchase price of your house, the type of property (e.g. residential or commercial), the location of the property, and your profile (i.e. age and income level).
To gauge the maximum property price you can afford, it is always best to ensure that the total monthly instalments on all your outstanding loans, and your prospective home loan do not exceed 70% of your net income. Net income refers to your income after deductibles, such as income tax and EPF.
Based on the example profile below, the purchaser is eligible for the maximum home loan tenure at 35 years. For borrowers above 30 years of age, the maximum tenure is tied to a borrower’s age.
Most banks stipulate that borrowers repay their home loans in full before they are 65 or 70 years old.
Here’s the breakdown:
Monthly net income: RM3,500
Monthly car loan instalment: RM600
Monthly personal loan instalments: RM200
Property price: RM400,000
Home loan interest rate: 4.2% (or BLR – 2.4%)
Monthly instalment: RM1,637/month
Total debt commitment a month: RM1,637 + (RM600 + RM200) = RM2,437
RM2,437 ÷ RM3,500 (monthly net income) X 100 = 69%
From the calculation above, the monthly instalment and other debt commitments do not amount to more than 70% of monthly net income. Hence, with a net monthly salary of RM3,500, you are most likely able to afford a RM400,000 property.
To make it easier, use online home loan calculator available on iMoney to calculate the monthly instalment of a property: http://www.imoney.my/home-loan.
Based on the monthly instalment, you will know the affordability of the property on your current net salary.
What about upfront payments?
It’s not all about monthly instalments – the largest upfront cost in a home purchase is the 10% down payment on the property. But that’s not all.
First-time home buyers may not know it; but buying and financing a home takes more than just the down payment and the loan. There are various miscellaneous fees and charges involved. Below is an estimation* of the fees and charges that may be incurred:
1. Stamp duty for transfer of ownership title (also known as memorandum of transfer or MOT)
• 1% for the first RM100,000
• 2% on the next RM400,000
• 3% on the subsequent amount
2. Sale & Purchase Agreement (SPA) legal fees
• 1% for first RM150,000
• 0.7% of remaining value of property within RM1 million
3. Stamping for SPA – Less than a hundred Ringgit
4. SPA legal disbursement fee – A few hundred Ringgit
5. Loan facility agreement legal fees
• 1% for first RM150,000
• 0.7% of remaining value of loan within RM1 million
6. Stamp duty for loan – 0.5% of loan amount
7. Legal disbursement fee for Loan Facility Agreement – A few hundred Ringgit
8. Fee for transfer of ownership title – A few hundred Ringgit
9. Mortgage Reducing Term Insurance – Think of it as a life insurance for your home loan. It can
come up to RM1,000 or more, but this may be optional with some banks.
10. Government Tax on Agreements – 6% of total lawyer fees
11. Bank processing fee for loan – RM200
*Note: The fees and charges are just an estimation based on recommended numbers and industry averages. Actual figures may differ.
To put things into perspective, a home valued at RM400,000 with 90% margin of financing set you back by about RM20,000 in fees and charges – which will have to be borne by you, the buyer.
It is advisable to always have extra cash on top of the money allocated for the 10% down payment before making any property purchases.
Once you have dotted the i’s and crossed the t’s, and most importantly, found your dream home, it is time to shop for a home loan that offers the most competitive rate. Most people just jump on the first home loan offer and do not spend time to compare and research.
This article is contributed by Iris Lee, from iMoney.my, Malaysia’s largest financial comparison website. To compare and apply for the best financial products, such as car insurance, home loans,personal loans and credit cards, visit www.iMoney.my