Before you start the actual hunt for a property, you should take a good hard look at your finances. Although most people get a property loan when they purchase their property, they still need to come up with some upfront cash for the following payments:
a A typical down payment
A home loan in Malaysia offers a maximum of 90% financing, which means if you are buying a RM450,000 property, you will only get a maximum of RM405,000 loan. You will need to fork out the remaining 10%, known as down payment.
Down payment is typically divided into booking fee of 2%, and then you pay the remaining 8% when you sign the Sales & Purchase Agreement (SPA).
10% Total Down Payment
– RM45,000 for a property price of RM450,000 –
|To be paid to property agent to draft an Offer to Purchase agreement
Example: RM450,000 x 2% = RM9,000
|To be paid upon signing the SPA. Represents the remaining down payment to be paid to property developer or seller.
Not to be confused for legal fees to draft SPA.
Example: RM450,000 x 8% = RM36,000
b Housing loan eligibility
So, how much can you afford to pay every month for the next 30 to 35 years.?
Not to confuse with affordability, eligibility merely gauges how much loan you will likely be approved for by the bank. To determine a price point for your property loan eligibility, consider this: your monthly income, cash you have available now, and how much you can borrow.
To gauge the maximum home loan you can apply for, it is always best to ensure that the total monthly instalments of all your outstanding loans, and your prospective home loan do not exceed 60% to 70% of your net income (after deducting income tax and EPF contributions). This refers to debt service ratio (DSR).
With the maximum margin of financing (percentage of the property price you can get a loan for) at 90%, you will need to find out how much your monthly repayment is, in order to calculate your DSR.
Loan tenure on the other hand is tied to the age of the borrower. A borrower aged 30 and below is likely to be eligible for a maximum loan tenure of 35 years (the maximum tenure). For borrowers above the age of 30, most banks will require them to repay their home loans in full before they hit the age of 65 or 70 years old.
Here is an example of a borrower whose loan application is likely to be approved by banks:
|Monthly net income
|Monthly car loan instalment
|Monthly personal loan instalment
|Margin of finance
|RM450,000 x 90% = RM405,000
|Home loan interest rate
|Total debt commitment a month
|RM1,904 + (RM600+RM200) = RM2,704
|Debt commitment % of income
|RM2,704/RM4,500 (monthly net income) x 100 = 60%
From the calculation above, the monthly instalment and other debt commitments do not exceed 65% of monthly net income. Hence, with a net monthly salary of RM4,500, this borrower is most likely eligible for a property priced at RM450,000.
For ease of calculation, use iMoney.my’s home loan calculator to calculate the monthly instalment of a property.
To ensure you get a lower DSR, always compare home loans in Malaysia to get home loan with low interest rate. This will help you get a lower monthly repayment, and interest savings in the long run.
Withdrawing EPF for down payment
Property buyers are usually required to deposit 10% of the property asking price as down payment. If you do not have enough cash saved up, you can opt to withdraw from your Employee Provident Fund (EPF).
Your EPF is divided into two account at 7:3 ratio — with the first account (70%) kept entirely for your retirement.
The second account (30%) can be used for property purchase, education, medical expenses and more.
This is only allowed for the member’s (or his/her spouse’s) first home, and for second home if the first house is sold or disposed off ownership, but can be made once every year.
The withdrawal is mainly for
- Individual purchase; or
- Joint purchase with immediate family members (parents, spouse, siblings or children) or other individual with no relationship; or
- To assist your spouse to recude/redeem their housing loan balance
You can withdraw from EPF to purchase your first home if you are:
- (i) A Malaysian Citizen; or
- (ii) A Malaysian Citizen who has made Leaving the Country Withdrawal before August 1, 1995 and has opted to re-contribute to the EPF; or
- (iii) A Non-Malaysian Citizen who:
- has become an EPF member before August 1, 1998; or has obtained a Permanent Resident status (PR),
- has not reached 55 years of age at the time the EPF receives your application; and
- has at least RM500.00 of savings in Account 2.
Documents you need are as below:
- KWSP 9C (AHL) (D5) Withdrawal Form, or you can apply for e-Pengeluaran.
- Personal Identification Card which can be a MyKad, Military Identification Card or a Permanent Resident Identification Card (MyPR). Others include Police Identification Card and Verification Letter from Employer stating that the Police number and Identification Card number refer to the same person (if without MyKad)
- Your passport, if you are a non-Malaysian citizen and have become an EPF member before August 1, 1998.
c Other upfront costs
Other than the down payment, there are other costs that must be borne by the buyer upfront and depending on the price of the property you intend to buy, these additional fees and charges can set you back up to an additional RM20,000 or more.
Here is a list of other costs involved:
- Legal fees to draft the SPA
- Stamp duty on SPA
- Lawyer’s professional fee
- Bank processing fee for loan facility
- Stamp duty and disbursement fee for loan facility
- Mortgage life insurance premium
- Government tax
- Transfer of ownership title fee
Find out more about the breakdown of these home buying costs.