Recently, there has been a post spreading around among Malaysians via social media containing an album of photos depicting information on how much a civil servant should be earning as their basic salary before their loan to purchase any real estate would be approved.
Safe to say, the responses were overwhelmingly outraged and disappointed as many young millennials expressed their concerns on how much money is needed to buy property nowadays, which explains why a lot of young adults choose to stay with their immediate family members while they continue hoping the prices will lower considerably in the future.
However, although the viral post shows how to calculate the amount needed before your loan is approved, it does not show the actual figure you should have saved up before you should even consider buying a house. Here are some things that should also be taken into consideration before the thought of purchasing real estate crosses your mind:
1. Upfront Cost
When it comes down to the initial payments needed for buying a house, the main one that most know about is the down payment price, which is 10 per cent of the total purchase price or the difference between the loan amount and the purchase price. In Malaysia, most banks offer up to 90 per cent of the property's price (margin of financing) for your first two residential properties. If you receive that 90 per cent, you need 10 per cent cash to pay for the rest of the property's price. Say you're targeting to buy a condo in Cheras for approximately RM400,000, you must have a minimum RM40,000 (S$135,379) to pay upfront, be it from your savings or money from your parents or siblings.
2. Ancillary Costs
These are better known as those hidden fees you'll be surprised to know must also be borne when making that first home purchase. First-time home buyers may not know it but buying and financing a home takes more than just the deposit and the loan; it also involves miscellaneous fees and charges. Here is a general list of what is usually included when it comes to the upfront money needed to be paid to own a home:
To put things into perspective, a home valued at RM400,000 with 90 per cent margin of financing comes close to about RM20,000 in fees and charges. Is that a value you would be able to pay immediately with what you have saved up?
3. Monthly Installments
Most millennials are already struggling for means to support their immediate family, so in the case of purchasing property, they lack the initial financial muscle to be able to buy everything upfront with cash. To do so, you'll need to secure a loan from a bank or a financial institution to help pay for your home.
There are many home loan calculators to help you see how much exactly you'll need to fork out per month just to cover the cost of your living abode as well as how long you would need to pay it. Most banks request borrowers to repay their home loans in full before the age of 65 to 70 years old.
Based on the current market rate of 4.2 per cent to 4.4 per cent p.a. interest for a standard home loan, you will need to pay a minimum of RM1,760 per month over the next 30 years for a 90 per cent loan to finance a RM400,000 home.
To properly gauge the maximum property price within your budget, it's best to ensure that the overall total of monthly installments on ALL your outstanding loans (car loan, personal loan, etc.) including your prospective home loan does not exceed 70 per cent of your net income (the income you see after deductibles such as income tax and EPF).
Financial experts usually recommend to not allocate more than a third of your total income to pay off your home loan, which means your household should have a general income of around RM5,000 per month to afford a RM400,000 home. Malaysian banks generally allow you to hold loans of up to 80 per cent of your income should you maintain a relatively good credit score, so the option to increase your monthly instalment to shorten your loan term is possible.
The numbers can be more intimidating than you may know. With each passing day, they continue to increase with the property market continuously growing. However, there are a few schemes the government has prepared to help those seeking for property for the first time:
Starting prices: RM170,000 - RM255,000
Individual or combined income: RM2,500 - RM10,000 per month
With 65,000 units under construction and an aim to launch 240,000 affordable housing units before the year ends, PR1MA has a variety of ranges in term of property sizes as well as prices, suitable for the middle-income age group. To apply, simply register for an account on their website and cast your ballot. A balloting process will be conducted to determine whether your entry is successful or not. They also have a few financing options such as PR1MA HOPE Home Assistance Programme, which offers financial solutions either through end-financing, rent-to-own schemes or The Care by PR1MA scheme.
Starting prices: RM100,000
Individual or combined income: RM3,000 - RM6,000
Specially for first time home-owners, this scheme provides a subsidy of RM30,000 to purchase a property at a low to medium cost range. The scheme can be applied for via online registration through their website or by filling in a form available at the Kementerian Perumahan dan Kerajaan Tempatan (KPKT) office in Putrajaya.
My First Home
Starting prices: RM100,000 -RM500,000
Individual or combined income: RM5,000 - RM10,000
This scheme was prepared to help young adults who work in the private sector to own their first home with a gross income that does not exceed RM5,000 to RM10,000 a month for joint applicants. There is also a 10-year moratorium where buyers are not allowed to re-sell or transfer ownership of the property except to immediate family members. This scheme also allows 100 per cent financing which deducts the 10 per cent down payment usually required. Applications can be done at any branch of participating banks which can be seen here.
Starting prices: RM100,000
Individual or combined income: RM10,000 per month
This was formed through a partnership between BSN and the government specifically for married youths aged between 25 to 40 years old. BSN bank will provide a loan up to RM500,000 with financing tenure up to 35 years for married youths looking to buy a house for the first time. The government will also give a 50 per cent stamp duty exemption for the loan agreement and give RM200 monthly aid for the first 2 years to ease the financial burden of young buyers. Applicants must be a BSN GIRO or GIROI account holder, and should their application go through, they will be eligible for 100 per cent loan amount of the purchase price with an additional 5 per cent of purchase price to finance for insurance (MRTA).
Starting prices: RM100,000 - RM250,000
Individual or combined income: RM3,000 to RM8,000
Lembaga Perumahan dan Hartanah Selangor created this scheme for those who are looking to buy property within the vicinity of the Selangor region. The properties available range from low to medium cost, which makes it ideal for entry-level homeowners and young working adults who are seeking to stay in Selangor. Applications can be done via their website.
Purchasing a house for the first time now comes off as a scary ordeal and requires detailed and strategic planning before making that big step into owning your own abode. The luxury of having a large sum of money to pay everything upfront is but a far-fetched dream so repaying loans for long years is about the only option for young millennials to be able to afford real estate at this time and age. Do the math properly and calculate every possible factor when it comes to house hunting. No one wants to end up being stuck in debt just because of misinterpreted numbers and empty promises by developers.