First time homeowner “How to get the best deal”
Are you ready to take the leap to becoming a homeowner? Buying your first property can be both exciting and daunting since it marks a significant new chapter in your life. As a first time homeowner, it may become overwhelming when you think about the amount of consideration and research that needs tto happen before you find your perfect home. But keep in mind that all this effort is extremely necessary for you to find the best deals and optimise your spending capabilities.
Before you start house-hunting, there are some factors to consider, such as your affordability, location, price range, type of property and more. Worry not. We have prepared a summary for you to get started to owning your dream home.
- Key Considerations
- Is this purchase for private use or investment?
Are you looking to acquire your first property for investment purposes, or for your own stay? This may influence the type of property you purchase, be it a brand new project or a sub-sale, a landed or a high-rise property. A common mistake that many first timers make is that they purchase a property for wrong reasons which in turn lead to a long and costly process to sell the home.
- How much can you really afford?
Going by the advice of most financial experts, your monthly instalments for your new home should not exceed one-third (1/3) of your household income. If you prefer a more accurate estimation, calculating your Debt Service Ratio would be the best alternative. The Debt to Service Ratio (DSR) is a calculation which shows the proportion of your debt in relation to your total income. Ideally, your DSR score should not be greater than 70%
DSR = (Total Commitment ÷ Nett Income) × 100
- What is your credit score?
It is important to note that your credit score is one of the key factors that determine your eligibility for a home loan. Banks will take into consideration your DSR as a credit score prior to approving the funds to purchase your home. There are two types of credit score report:
- Central Credit Reference Information System (CCRIS) report – Available online and displays all of your total credits, interest charges and other outstanding charges for all loans that you have with any banks in Malaysia – everything from a personal loan and credit card to hire purchase and overdrafts.
- Credit Tip Of System (CTOS) – Compiles information for summons and bankruptcy on individuals and companies from various sources found in the public domain.
Ultimately, loan applicants can always s check their credit status online for free instead of having to go to BNM.
- Costs that go into Buying a House
- Down payment
Typically, a 10% down payment of the property purchase price is required to initiate the buying process while the remaining 90% of the property price will be financed via an approved bank loan. Given the recent economic downturn and soft property market, many newly-launched properties offer rebates or even zero down payment, subject to developers’ ongoing promotion.
- Booking fees
Booking fees are commonly much lower than down payments. They serve as a ‘registration of interest’ for a property which will subsequently be used to finance your down payment upon your confirmation to purchase. Be on the lookout for offers from certain developers who may even waive the booking fees for your first purchase.
- Hidden costs
A common setback that often catches first time homeowners by surprise is the additional fees involved when purchasing a property. Some hidden costs may include lawyer fees, Sales & Purchase Agreement (SPA) fees, stamp duties and valuation fees. Depending on the project, some developers may absorb the legal and SPA fees, but this is subject to the developers’ discretion. It is also advisable to set aside a small pool of funds for home furnishings that may be required once you move into your new home.
For sub-sale properties, the hidden cost is through property valuation, where you will have to pay for the inspection and report. The bank will engage a valuator to physically inspect the home of interest. Once you have made your decision to purchase, you will need to sign a document known as the Letter of Offer (LOA) and pay the 2% earnest deposit. The LOA will stipulate the date before which the SPA must be signed, usually within 14 days.
Another potential hidden cost that may arise in the future is the Real Property Gain Tax (RPGT). Homeowners who purchase a starter home and eventually sell the property after a few years will be subjected to pay for RPGT upon the completion of selling your home.
- Home ownership programmes
A cost-saving alternative to purchasing your first home can be in the form of home-ownership programmes initiated by the government in recent years.
- My First Home Scheme (Skim Rumah Pertamaku) – Allows first-time home buyers, aged 35 and below, to obtain 100% loan from financial institutions on properties valued between RM100,0000 and RM400,000.
- BSN My Home (Housing Scheme for Youths) – Stamp duty on the transfer of ownership and facility documents are exempted and initial assistance with monthly instalments is also provided
- Perumahan Rakyat 1 Malaysia (PR1MA), Rumah Selangorku and Residensi Wilayah aims to provide affordable housing to certain income-segments of the population.
- Do Your Own Research
- Due Diligence
Make sure you meet the vital criteria you set for yourself by ensuring you purchase the right home that fits all your requirements. Filter through iProperty.com.my by the areas you are interested in as well as your budget range. You can even customize your search according to the number of bedrooms, built-up sizes and property types, be it new launches, sub-sale or auction properties.
Some key factors to analyse include the property’s location, accessibility, surrounding infrastructure/amenities and pricing analysis. Consider also the furnishing of the property, as well as the types of fittings you want. Many developers of new projects offer value-added packages for interior decorating which can sometimes be a better bargain than engaging external with interior design services separately.
- Shopping for Loans
As soon as you pay your booking fee or deposit, you should start sourcing for home loan options. Be sure to approach different banks to find out about their offers on different home loan products including term and flexi loans. It is also important to determine what sort of home loan will suit your repayment capability which will require some basic understanding of loan offerings in Malaysia.
A key aspect of home loans is the interest rate – which could either be floating or fixed. Fixed interest rate means that throughout your loan, the interest you pay will not differ in its amount. Gloating loans have an interest rate that is pegged to Bank Negara Malaysia’s Base Lending Rate (BLR), hence the value will fluctuate according to the BLR’s movement. Even though the rate might be higher, a fixed rate loan is more suitable for the risk-averse as it guarantees certainty.
- Hire a real estate agent
If the steps outlined above already has you feeling overwhelmed, you could always take the less stressful route by engaging with a real estate agent for your purchase. Keep in mind that you will need to be as forthcoming as possible with your requirements (budget, property locations, type, size, loan tenure, land tenure, number of occupants etc.) to ensure that your purchasing journey goes as smoothly as possible.
However, do note that according to the Seventh Schedule (Rule 48) of Valuers, Appraisers and Estate Agents Act 1981, the maximum commission fee for real estate agents for the sale or purchase of land and buildings is 3%. Additionally, the real estate agent fees are subject to a minimum fee of RM 1,000 per property.
A good realtor should be prepared and well versed on the type of property you are considering, including good knowledge on the property market to help you find a property that meets all your budget and requirements. Additionally, property agents will also ease your home buying process by knowing the procedures and paperwork required which can significantly reduce the purchasing timeline. They may also be able to negotiate a good deal for you between the developer or previous homeowners.
- Make an offer
After you’ve made it past all the steps above and finally ready to purchase your dream home, your lawyer will proceed to prepare the SPA which will be signed by you and the seller. You’ll be required to pay the remainder of your down payment and stamp duty fees if you have not been exempted by the criteria listed earlier in this post. Once the signing process has been completed, you will be charged lawyer fees for all the documentation prepared by the lawyer.
Following that, all you have left to do is wait for your property to complete its construction or key handover for sub-sale purchase. After which, you’ll be able to move into your dream home and start fresh!