Buying a house will be one of the most important financial decisions you make in your life. However, without proper planning, your lifelong dream could make you lose more than you gain and you might end up with a bad investment.
That’s why it’s important to keep the below points in mind when you’re investing in a house in Malaysia.
1. Understand the Housing Industry
So you have embarked on the journey of choosing your new home. Before you begin, it is important to be well-informed about the housing market in Malaysia. There are a number housing policies in Malaysia targeted at different income segments.
Start by doing your research based on your income bracket and affordability. Look out for housing loan and mortgage announcements released by Bank Negara Malaysia (BNM) to get an upper hand in the market.
Recently, the BNM had announced that housing loan repayment period shall be extended to 40 years instead of 35 years. This kind of information will be helpful when you’re negotiating.
2. Be Prepared for the Down Payment
Once you have selected your house at your desired location, you should consider if the down payment is affordable.
Ideally, the down payment on the house is either 10% of the house cost or the difference between the loan amount and price of purchase. In the case of a housing loan, you will need to pay 10% upfront.
For example, if a house costs you RM500,000, you need to pay RM50,000 immediately. Make sure that you have that kind of savings before you apply for your housing loan.
3. Pick the Right Housing Loan
Before you settle on a housing loan, it is important you understand the different loan packages being offered. While the loan amount with the lowest interest rate might seem feasible, do read the fine print carefully. It is crucial that your loan offers you flexibility in the long run.
Let’s say you plan to sell your house in the recent future. A bank lock-in period might not work in your favour. Even in the case of an emergency sale, your bank loan conditions may lead to your underselling your house. Make sure you understand your needs perfectly before choosing a housing loan with your bank.
4. Ensure You’re Eligible Before you pre-qualify your loan
It is crucial that you understand your credit score and eligibility before you apply to pre-qualify your loan. Without proper preparation, you might end up losing a lot of money in deposit payments.
You may need to submit a letter of intent to the bank in order to pre-qualify for your loan. Based on the current market rates and your past credit performance, the bank shall pre-qualify your loan. Discussing this with a loan officer will give you the financing insight you need.
5. Check Your Loan Repayment Eligibility
Your current credit standing will be crucial for a bank to approve your housing loan. Two of the biggest measuring factors in this scenario are your credit score and your debt repayment capacity. Banks will look into your past credit history to assess your debt repayment behaviour.
Your current salary and expenses are also taken into consideration by banks. This helps them determine your ability and the estimated time you will take to repay the loan.
Generally, banks look for a debt service ratio capacity of 33% to 85% in order to approve your loan. This includes credit cards and other loans you might be a part of. You can make the job easier by looking for a house that is affordable, even after your credit considerations.
6. Keep in Mind the Ancillary Costs
Be prepared for certain hidden fees and charges coming your way once you have decided on your loan amount. Some of these costs include stamp fees or transfer fees for the ownership title, sale and purchase agreement (SPA) legal, stamping and disbursement fees, stamp duty for loan, loan facility agreement legal fees, and government tax and bank processing fees.
These fees and charges are expected to be paid when you clear the upfront fee. It’s advised to sit with a realtor and understand the various fees and charges, so you have a fair idea of the expenses coming your way.
7. Be Aware of the Instalment Payments
Instalment payments fall under the 90% amount that has been taken as a loan. For instance, you have pay RM450,000 along with the general 4.5% to 5.5% of interest. Considering 4.5% as the rate of interest, an amount of RM1,687.5 has to be paid by you each month.
This level of planning on expected repayments will make it easier for you to allocate money from your monthly salary. There are a number of loan calculators available in the market that can help you decide the exact amount you need to repay during your entire loan period. These loan calculators also take into account the increase in the interest rate in the future, which shall help you foresee your future commitments.
If you follow the above measures, your dream home will be yours without a lot of hassle. One thing you should remember is settling a loan in advance means no more dues to clear.