Having a dream home is every Malaysian’s ultimate goal. Despite experts says that property price growth has been slowing down due to the bad economy and market glut, millennials still have a gloomy outlook on their probabilities of owning a house today. Therefore, before hunting for a property, take a good look at your finance, incomes, and expenses before deciding what to purchase. Although you will get a home loan when purchasing a property, you still need to prepare some upfront cash for the down payment. Many people often forget about other hidden costs besides the down payment. Click here to understand more about OTHER HIDDEN COST.
Apart from your salary, there are many other factors which you need to take into accounts before buying a property. To help you understand how much should you be earning and what can you purchase with your current income level, we have a table below that showcase the property prices with monthly installment and loan (90%) based on your monthly earnings. Take note that this is if you do not have any other commitments such as car loans, personal loans, credit card debts, and other credit facilities which will affect your debt-service ratio (DSR).
1. How much should you be earning?
You can have enough money to buy a house with an indicative amount up to RM178,000 with a settlement of RM900 each month.
You can have enough money to buy a house with an indicative amount up to RM297,000 with a settlement of RM1,500 each month.
You can have enough money to buy a house with an indicative amount up to RM554,000 with a settlement of RM2,800 each month.
You can have enough money to buy a house with an indicative amount up to RM832,000 with a settlement of RM4,200 each month.
You can have enough money to buy a house with an indicative amount up to RM1.2mil with a settlement of RM6,400 each month.
You can have enough money to buy a house with an indicative amount up to RM1.5mil with a settlement of RM8,000 each month.
2. Factors that define your maximum loan amount
A) The most important factor – Debt Servicing Ratio
Take note that the property prices above are just a rough estimation. There are a couple of other reasons that will impact the final loan amount you’d be eligible for. One of the most important factors is your Debt Service Ratio (DSR). The DSR basically takes stock of your loan and credit commitments, and then compares this to your income. They will be able to recognize how much of your income is being utilized to pay off debt and if you can add on a new loan with respect to your earnings. Here is the calculation that shows how much of your net income will be used to pay off your monthly debt installments.
DSR = Commitments / Income x 100
It is always best to ensure that the total monthly installments of all your outstanding loans and your prospective home loan do not exceed 60% – 70% of your net income (after deductions on tax and EPF). This is known as the Debt Service Ratio (DSR).
Although there can be major differences in the final DSR amount between different banks because every bank has their respective calculation methods for income and commitment recognition, a good rule-of-thumb is to have a DSR amount below 70% all the time. For example, if you earn RM5, 000 each month, your total debt must not exceed RM3, 500 based on the 70% DSR rule.
Commitments refer to all existing financial obligations such as student loans, personal loans, credit card repayments. The last thing you want to do is to utilize your entire salary for housing expenses. Another major aspect that you should take into consideration is your credit score reports like CCRIS and CTO S report if you want more accurate results. Check out what CREDIT SCORE REPORTS are and HOW DO THEY BENEFIT YOU here.
B) Other Factors that determine your maximum loan amount
- An individual’s risk profile
- Property valuation
- The maximum Loan-to-Value (LTV) ratio / Margin of Finance available to you
3. So what steps can you take to increase your borrowing power?
- Reduce your debts
Reducing balances on credit cards or your overdraft will make banks assumed that you are better able to cope with a bigger mortgage and ready to lend you more.
- Check your credit rating
A high credit score will help you qualify for a lower interest rate thus reduce your monthly payment and allow you to qualify for a higher mortgage amount.
- Get a guarantor
Banks may be more eager to lend you home loan if they know you have a guarantor with a good credit record will guarantee to repay the loan if you run into difficulties. Thus, it is recommended for first-time buyers to get a guarantor to underwrite the mortgage.
- Consider buying with someone else
It is possible to take out a bigger mortgage with someone else compare to buying alone.
Once you have an idea of how much you can borrow from the bank, you can then proceed to search for the best loans available in town!