FundMyHome: How It’s Good And Bad For You
The Pakatan Harapan government announced a new alternative homeownership scheme for Malaysians during Budget 2019. Based on peer-to-peer (P2P) principles, the FundMyHome scheme is supposed to provide easy funding for first time buyers.
Managed by EdgeProp Sdn Bhd, FundMyHome basically means that you are asking regular people for help in buying your house. You’re not taking a traditional home loan from a bank, but instead getting one from a group of anonymous individuals (which are generally called investors).
In this case, the investors will have equitable interest in your home. In more basic English; they legally own part of your house. As far as homeownership goes, this is no different from the deal you’re getting from the bank.
How does FundMyHome work?
Here’s how it works; you pick a house and you pay 20% of its value up front. Your investors pay the remaining 80%. All of you are tied to the house for five years, after which you later decide if you want to keep the house or sell it.
For example, let’s just say you want to buy a house that costs RM300,000. All you have to do is fork out RM60,000 and your investors will fund the remaining RM240,000 for you.
At this point, you’re probably thinking, “Where am I going to find these investors?”
Well, you don’t have to. Go to the FundMyHome website, click on “Buy”, and you’ll see a list of housing options there according to your preferred location and developer. You will also see two indications, “fully funded” and “funding in progress”.
If the indicator says “fully funded”, that means there are already investors funding your chosen home. “Funding in progress” means that particular house doesn’t have enough funding for you to buy it yet.
The site also tells you how much you need to pay in order to own the house. All you have to do is pay that 20%, get all the paperwork done, and it’s all yours.
What if I can’t afford the 20% upfront payment?
FundMyHome applicants can apply for a government loan of up to RM30,000 under the DepositKu scheme to help with the upfront payment. Here’s an illustration of how this works:
How much do you have to pay upfront for a house worth RM307,000?
|Non-Bumiputera buyer||Bumiputera buyer|
|20% of property price||RM61,400||RM61,400|
|With DepositKu loan||RM61,400 – RM30,000 =|
|RM61,400 – RM30,000 – RM21,490 (7% Bumiputera discount) =
What happens next?
Now, let’s tackle the million-dollar question: So you buy a house under the FundMyHome scheme and live there for five years. What next?
Well, you now have a very important decision to make – one more important than what you’re having for dinner tonight.
If you want to keep the house, you will need to buy the 80% share of your home held by investors (with your own funds or through a bank loan) or refinance your home via FundMyHome. Alternatively, you can sell the house and hope to make a tidy profit (this is not guaranteed).
Either way, FundMyHome will appoint an assessor to determine the current value of the house. You don’t have to pay for this assessment, but you do have to make sure it happens six months before the end of five years.
Three things can happen in this case: the house value appreciates, the house value depreciates, or the house value stays the same. We’ll look at each of these scenarios.
Let’s assume you purchase a property valued at RM300,000:
You might be wondering why your share of the proceeds are only RM6,000 if your home value rises by 30%, but your share of losses amounts to a whopping RM60,000 if your home value drops by 30%.
This is because if the value of your home goes up, the investors are prioritised in the distribution of sales profits. However, if the value of your home goes down, the capital losses will be taken out of your share of the property, although your losses will be capped at 20% of the original property value.
What are the advantages of FundMyHome?
The most obvious advantage of the scheme is that you don’t have to pay any monthly payments for the first five years. This could lighten the financial burden of homeownership – at least for the first few years. In the meantime, homeowners who do not need to service mortgages can direct their extra cash flow to buffing up their savings, investments or other financial goals.
What are the disadvantages of FundMyHome?
Here’s what prospective buyers need to be aware of:
- Limited capital gain. If the value of your home rises after five years, investors will get preferential share of the profits. As a buyer, you won’t get any profit unless the home appreciates more than 20% (which is quite an optimistic outcome to hope for), and even then the profits will be split 20/80.
- Potential loss of initial investment. If the value of your home depreciates after five years, you stand to lose a lot of your initial investment. Just a 10% depreciation in home value could cause you to lose 50% of your initial investment.
- Buyer bears costs related to sale. When you sell your home, you will have to bear all third-party costs, such as an agent’s fee (2% to 3%) and an RPGT tax on sale profits (at 5% of profits if the property price is above RM200,000).
If I can afford to pay 20%, why don’t I just buy a house the conventional way?
The idea here is that you can start paving your way towards owning a home without taking out a mortgage right away. You are free from any monthly payments for at least five years. This is, of course, assuming that the 20% comes out of your pocket. You can also rent out the place, which means you are free from monthly commitments and you get steady stream of passive income.
You are also not tied to the house in case you come to realise that you don’t really like the location, or if you have switched jobs. After five years, you can sell your place, withdraw your initial RM60,000 investment (plus profits) and move to another home.
What if the house I want says ‘funding in progress’?
If the house you want has the indicator ‘funding in progress’, then you have two options. You can either wait for the indicator to change, or you can select it anyway, make the 20% payment, and hope that it will be funded within remaining 80% within 30 days.
If the funding target is not met within 30 days, your money will be refunded to you. If you manage to get an investor, then you’re on your way to owning your first home!
The FundMyHome scheme may or may not work for you, depending on many factors like how much savings you have, whether you going to borrow money to place your deposit, whether you are buying a home along with a partner, whether you are looking for a permanent home or just looking to invest; and many more.
The scheme has its pros and cons, so it’s important that you do extensive research and speak to an expert before you proceed to buy your first home.
This article was originally published on November 26, 2018.