A Monthly Income Of 3000 Is Suffcient Fo Buying A House
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However, owning a home is a distant dream for some young people, and for most of them, the first question when considering buying a home is whether their meagre salary is enough to pay for their mortgage payments.
Can they still afford a house after paying for basic necessities on a monthly income of RM3,000?
The answer is that it is absolutely possible!
a) The first step in buying a house is to have the right financial mindset, determination, discipline, and patience.
- It is important to have a thorough understanding of your salary distribution and to know how to save money.
- Firstly, it is important to understand whether the selling price of the house is within your affordability range. A healthy mortgage payment ratio is usually 40% or less of your net income per month, and it is not recommended to choose a selling price that is beyond your affordability range, which will increase your financial burden.
- So how do you come up with the down payment for the house? Let’s say you want to buy a house worth around RM 300,000, and the down payment is RM 30,000, which is not a small amount for a young person who have just entered the workforce! However, as long as you save 15% to 30% of your monthly salary, which is about RM 500 to 833 per month, you can accumulate enough savings to pay for the down payment in 3 to 5 years. If you have more savings to pay for the down payment every month, the monthly payment period will be reduced.
- Are there other ways to pay for the down payment? Yes, there are! You can borrow a personal loan from a bank, but if you use this method to pay for the down payment, the monthly payment period for both the mortgage and the personal loan will be a heavy burden. Another option is to use your savings in the second account of your EPF, but that money is your retirement savings. Do you really need to use it? It’s wiser to use the virtue of savings to pay for the down payment.
- Understanding the need for a side hustle, coupled with the continuous effort to “give yourself a raise” every year.
- Increasing your income is certainly important! In this age of developed internet, everyone should take advantage of their youth to explore a side business in their field of expertise or interest. Of course, your main job income will also increase with accumulated work experience and new jobs after you’ve gained sufficient experience. Therefore, the 30-year loan repayment period that is approximately RM1300-RM1500 per month (calculated based on a RM300k house), would not be a problem to pay off.
b) The second step to buying a house is to understand bank loans. If you are a first-time borrower and have no other loans, most banks will approve up to 90% of the loan!
- Banks may reduce or reject your home loan application for the following reasons:
- Your income does not meet the bank’s requirements.
- Poor credit history.
- Low financing margin.
- Failure to submit the necessary documents requested by the bank to facilitate the loan assessment.
c) Banks generally evaluate a borrower’s loan eligibility and determine the maximum loan amount based on four main factors. On the one hand, this is to protect the bank’s own business interests, and on the other hand, it also reduces the risk of bankruptcy for the borrower.
- Borrower’s Debt Repayment Ability.
- The repayment rate is key in determining the maximum loan amount.
- It is calculated as the ratio of total debt to income.
- The lower the repayment rate, the better the ability to repay the loan and help increase the loan amount.
- Borrowers can minimise their total debt or increase their income to improve loan repayment ability.
- Each bank adopts different calculation standards, so the calculated repayment rate will be different. Example: Bank A calculates based on gross income, but Bank B calculates based on net income.
- The repayment rate set by general banks is up to 70% of net income. Each bank has different repayment rate standards, including considering personal net income, personal net assets, education, debt ratio or age.
- Individual Risk Assessment
- Banks will scrutinise your credit history as part of a personal risk assessment.
- Check your past purchase records to see if you have paid on time, such as buying a car, taking out a loan to buy a house, signing a mobile phone package or credit card debt, to determine whether you are a creditworthy lender. Therefore, personal credit history is very important.
- The higher the score, the higher the chances of being approved for a loan.
- Compare House Price Loan Ratio
- The house price loan ratio is a loan risk assessment conducted by the bank before approving the mortgage.
- The larger the loan amount borrowers apply for, the greater the risk they take.
- In Malaysia, the expected ratio of residential mortgage loans is usually 90%. Budget estimates, if the house price is RM300,000, then you will get a mortgage loan of RM270,000, which means you only need to afford the remaining RM30,000 downpayment.
- Bank Negara officially revised the mortgage loan ratio on November 2, 2010. The maximum mortgage loan ratio for buying a third house is 70%. For example, Mr. A obtained bank loans in 2003 and 2008 to purchase the first and second houses respectively, but these two loans have not been repaid. In 2011, he applied for a third loan from the bank to purchase a third house. And the maximum amount of this third loan is 70% of the house price.
- In the short-term economic recovery plan launched by the government in June 2020, it was mentioned that as long as you buy the third or more houses worth more than RM600,000, you can borrow up to 90% of the loan.
- According to this policy, in addition to maintaining a stable real estate market, it is also promoting the continued affordability of housing for residents. You can estimate the maximum home loan amount your budget can afford by using a home loan calculator website.
- House valuation
- Suitable for buying and selling properties.
- The house appraisal is used to protect the interests of both the buyer and the bank, and avoid the loss caused by the forced auction of the property in the future.
- The higher the home appraisal value, the more borrowing, and the income that does not meet the standards will reduce the chance of approval.
- Bank interest is generally between 4.3%-4.5% (the level of interest depends on the calculation standard of the bank)
d) Apart from paying the down payment and applying for a loan to buy a house, what other fees do you have to pay?
- Stamp Duty
- Lawyer fee
- Sale contract
- Loan contract
- Booking fee
- The reservation fee refers to the fee paid by the buyer to the developer for the reservation. However, this amount is usually only required for New Projects and most are refundable.
- If the buyer provides evidence that the two banks do not approve the loan, the developer will refund the reservation fee according to the procedure, which can protect the interests of the buyer.
- Appraisal fee (appraisal fee is only required to buy and sell second-hand houses, and the fee will be charged according to the price of the property)
- Buyers must pay an appraiser’s home appraisal fee. After the mortgage application is approved, the bank will hire an appraiser to conduct an appraisal based on market value and other items.
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