I believe, all of us especially young adults are wishing to have their own house, including me. However, we need to know our financial capability and stability before we start planning to buy our first property. Here, I would like to share some Tips on financial planning before buying your first property!
Buying a home on your own is a huge commitment and one of the biggest milestones you achieve in life for most Malaysians. With the rising housing price in Malaysia, purchasing a house in Malaysia can be a financial burden. IT is reported that the loan growth has lowered down over the years due to stricter loan requirements from banks and also the economy uncertainties. This in turn has made buying a property harder than it already is. Fret not, this article will guide you through some tips on financial planning before you buy your first property.
1) How much can you afford?
First of all, you will need to know exactly how much you can afford before you start searching for a house. After all, buying a house is a huge financial commitment and you need to think thoroughly before making such major decision.
Let us say you are interested in buying a condominium unit in Damansara North that costs approximately RM500,000, you will need to pay a 10% down payment of RM50,000. You will then need to ask if you are capable of paying the down payment? Can you afford to pay for the monthly mortgage repayment with your monthly income? Can you monthly income secure you a bank loan? These are the few questions that you will need to ask yourself before buying a house.
Financial institutions will also look into your debt service ratio (DSR) before they decide on the loan amount that you are eligible to loan. The DSR is an indicator of your income that has been spent on debt repayments, such as personal loan, auto loan or home loan. They will then based on the remaining income available to determine how much you are able to afford for the bank loan that you applied to. Your DSR along with the repayments of the loan you apply should not be more than 60% if you want to be eligible for the loan.
2) Upfront payment
One of the biggest challenge that most people face is the upfront payment, also known as the down payment. Most properties would require the buyers to pay a 10% down payment for the property so the buyer will need to get a 90% loan from the bank to afford buying a house. Let us say you are buying a RM500,000 property, you will then need to prepare at least RM50,000 for the down payment in cash. Other than the 10% down payment, there are also some miscellaneous fees that you will need to pay upfront.
It is reported that 75% of those interested to buy their own first property have not saved enough for the down payment. Among those who have bought a home in the past two years, only 15% of them managed to pay for the down payment as they had an accurate and precise budget. The rest have overspent their budget. Most of them overspent of renovation costs, legal fees and buying furniture. While we know that some miscellaneous fees are unavoidable, such as legal fees, stamp duty, processing fees and insurance, renovation costs and furnishing can be cut down easily if well planned.
3) How to increase your eligibility?
The simplest way to increase your eligibility to afford a house is to have your income increased. As your salary increases, your DSR will automatically reduce and you will naturally increase your chances of securing a bank loan. It is understandable that most people will think getting a raise or promotion is not easy, hence unable to afford a property due to insufficient earning. But young working adults could always be creative and hardworking in their budgeting to make it more achievable to buy a house. Young working adults should always have a financial plan and precise budget to help themselves. Start planning early and have a budget in mind so you can buy a house on your own earlier.
Other than planning your budget early, you could also manage your debts by reducing them to increase your eligibility in securing a bank loan. Clear off your debts as fast as you can or go opt for a debt consolidation plan by consolidating your credit card loans and personal loan into a single personal loan with low interest in order to increase your eligibility. In addition, try not to apply for more credit cards so your DSR will not be affected when it comes to applying for a bank loan.
In conclusion, it is still possible to buy a house as long as you plan your finance accordingly. Most importantly, know what you can afford and always stay realistic. Stick to your budget so you will not end up in a financial debt in the future. The sooner you start planning your finances,the sooner you get to buy a property on your own.
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