FundMYHome: How It’s Good And Bad For You
The Pakatan Harapan government announced a new alternative homeownership scheme for Malaysians in the recent 2019 budget. 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.
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 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 repay your investors. Alternatively, 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 6 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. Let’s look at each of these scenario and their possible outcome.
What happens if house value goes up after five years?
Then that’s great, everyone makes a profit. Here’s how it works if you decide to sell the house:
|House Price||You Pay (20%)||Investors Pay (80%)|
After five years, assuming house value goes up by 10%
|House Price (+10%)||Your Share||Investors’ Share|
What happens if house value goes down after five years?
|House Price (-10%)||Your Share||Investors’ Share|
You might be wondering why your share is smaller if the value of the house drops. This is because investors are prioritised in the distribution of sales profits, and they must be paid back their initial investment which is RM240,000 – unless the value of the house turns out less than their initial investment.
In this case, the investors’ share value will drop to RM210,000 due to the 10% drop. The buyer, i.e. you, will have to compensate for that, which is why the investors will walk away with RM240,000, and you keep RM30,000.
The best scenario will be if the house value doesn’t appreciate or depreciate – because then the flow will go like this:
|House Price||You Pay (20%)||Investors Pay (80%)|
After five years – house value stays the same:
|House Price||Your Share||Investors’ Share|
If I want to buy a house, do I need to have the 20% money already?
Yes, it’s better if you do. Once you select a home, you need to make the 20% payment and settle all other administrative fees within 14 days.
But 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 5 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.
Aside from that, it also works as a great investment avenue. Assuming that you pick a great location and the value of your house appreciates in five years, you’ll get a bigger return for the 20% that you initially put in.
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, are you going to borrow money to place your deposit, are you buying a home along with a partner, are you looking for a permanent home or just looking to invest; and many more.
The scheme, which is set to take off in 2019 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.