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Saturday, April 12, 2014

Financially Ready to Buy a Property?



Before I buy a property, I thought it was always about looking at the property price, prepared the 10% downpayment, get a bank loan and job's done....but what happened over the last 3 months plus has given me a new understanding on what it really takes to buy a property.

OWNING A HOME?


First of all, knowledge is important, and one really need to check the details to ensure that they are financially ready to buy a property. It can be an ultimate dream to own a home, but with escalating real estate prices and the burden of lengthy loan repayment periods of about 30 to 35 years, buying and financing a property is not just about "I love it!". Here are some of the things that I believe is important for us to consider whether we are financially ready to buy a property.

UPFRONT COSTS...CAN YOU BEAR IT?

In Malaysia, most of the banks are going to offer up to 90% of the property's price for your first two residential properties. If you are taking 90%, make sure that the 10% of the property price is not a problem for you. Say for example, you're targeting a condominium in Puchong at about RM400,000, you must have a minimum of RM40,000 to pay upfront, be it from your savings or money from your parents or sibings. However you do it, you must make sure the RM40k is there. (Take note that the 10% is based on the property price. There are cases where your bank might value the property at a lower price than your purchase price. In that case, you must pay more than 10%)

EXTRA CASH FOR OTHER FEES & CHARGES

Most first time home buyers will not realize this. Buying and financing a home is more than just paying the deposit and loan...it also involves other other fees and charges...
Here are some of those that you might have to consider. The amount is based on the average of the industry. The actual amount might differ but this can be a good guide for you to follow.
  1. Stamp Duty - for transfer of ownership title, also known as memorandum of transfer (MOT). 1% for the first RM100,000; 2% for the subsequent RM400,000; 3% for the subsequent amount.
  2. Sales & Purchase Legal Fees (SPA) - 1% for the first RM150,000; 0.7% for the remaining value of a property within 1 million.
  3. Stamping for SPA - less than RM100.
  4. SPA Legal Disbursement Fees - a few hundred Ringgit
  5. Loan Facility Agreement Legal Fees - 1% for the first RM150,000; 0.7% of remaining value of a property within 1 million.
  6. Stamp Duty for Loan - 0.5% of loan amount
  7. Loan Facility Agreement Disbursement Fees - a few hundred Ringgit
  8. Fee for transfer of Ownership Title - a few hundred Ringgit
  9. Mortgage Reducing Term Insurance - basically, this is similar to how a life insurance works, but for your property. About RM1000. If you are close to the bankers, you may try to ask them to waive this for you.
  10. Government Tax on Agreement - 6% of Total Lawyer Fees
  11. Bank processing fee for loan - Approximately RM200
It is important to ensure that you are able to settle all these when you plan to buy a property.

It will probably take you about RM20,000 plus should you decide to buy a property of about RM400k. 

READY FOR MONTHLY INSTALLMENT?

Well, this is pretty straightforward, but it's also important that you make sure you can bear the monthly installment. 

If you are taking the current rate of about 4.2% to 4.4% pa for a standard home loan, you probably have to fork out about RM1,700 for monthly installment (for a condo of about RM400,000). If you want to count the monthly installment, you could easily find the calculator online from iproperty, propwall and many other websites. You could also download an excel calculator on your own as well. 

As most financial experts would suggest...allocating not more than 1/3 of your income to pay off your home loan. This means you need to have about RM5000 plus in order to buy a home of about RM400,000. 

Make sure you do the maths and ensure that your monthly installment can be covered. 

OTHER THINGS TO CONSIDER

A) INCREASE IN EXPENSES FROM OWNING A HOME

Besides all of those that I have mentioned, you must also consider the expenses that will increase from owning a home...your maintenance fees, utility bills, broadband etc will also go up. It is important to take note of that. It is likely to increase your expenses of up to RM300 to RM400 a month.

B) IS RENOVATION REQUIRED?

If you are buying from a subsale, you must also consider this...is renovation required...recent survey helped me find that a simple renovation on a condo would probably take up to RM30,000. So, if there is a need for renovation and repair of the property, you must also take this into account. 


Well, if you are keen on buying a property, make sure that you are prepared to handle it...buying a home is a great pleasure but one must ensure that this dream will not cause distress to your cash flow. Hope that this help those who want to buy a property get an estimate of their financial capability to buy a Property.

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