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How to buy your first home with small salary?


Brian works as a warehouse supervisor at a retail company in Kuala Lumpur earning about RM3,000 per month and he takes home an extra income about RM400 per month as a food delivery rider during the weekend. He has been renting a house for 2 years and he is planning to look for a new house to buy before he gets married. 

Brian thinks his income is too low to ever own a house. He also witnessed many first-time homebuyers among his friends make the mistake in their home loan application, which results in frustration due to loan rejection. Here, we provide some important home buying tips for first-time homebuyers with a small salary to help to get their very first house loan approved.

 

1. Figure Out How Much You Can Afford

Bank will use the Debt Service Ratio (DSR) to calculate borrower’s eligibility for a home loan by calculating the ratio of total debt to household income. 

 

Tips: 

  • If your monthly income is less than RM3,000, you need to ensure that your current DSR is below 60%
  • If you already have existing commitments like car loans or personal loans, try to increase your monthly income such as a part-time job or part-time business
  • Look for a bank that accepts irregular forms of income like part-time income to be calculated in DSR

 

2. Select the right property

The rule of thumb is to make sure mortgage installment should not be more than 35% of the total monthly salary. 

A simple formula for you to select the right property:

Monthly installment x 200 = Price of property you can buy

Tips:

  • Target  property with good location and surrounding infrastructure/amenities
  • Check how much you can allocate per month to serve the future housing loan 
  • Look for a property which the monthly installment is not exceeded RM1,000

 

3. Improve Your Credit Score

Banks don't just look at DSR when determining the interest rate and payment term for the mortgage, though. They'll also consider the applicant’s credit score. That's because banks use what's called a risk-based pricing model to determine loan terms.

 

Go get a copy of your CCRIS (Central Credit Reference Information System) and Credit Tip-Off Service (CTOS) credit reports to check for potential problems or concerns like: 

 

  • All existing loans and credits which already overdue (Bear in mind that PTPTN also appears on CCRIS!)
  • Special attention accounts where accounts are closely monitored by financial institutes
  • Loan application that has passed or is being processed within 12 months

 

Tips:

  • Clear your credit card debts and loan outstanding
  • Demonstrate strong savings habits by having both a sizable savings deposit and high regular transfers to a savings account 

 

4)     Choose the right housing scheme or mortgage

 

There are affordable housing schemes available offered by the Federal Government and state authorities like Skim Rumah PR1MA, Residensi Wilayah, and My First Home Scheme (Skim Rumah Pertamaku).

 

Tips: 

  • Get to know the schemes in detail because if you are the chosen applicant, you don’t need to pay a 10% down-payment to purchase the property
  • Submit a home loan application to a few banks simultaneously before executing the Sales and Purchase Agreement (SPA)
  • Proceed with S&P signing after you receive the Letter of Offer from the bank agreeing to finance the house

 

5)        Identify legal fees

 

Aside from your down payment, remember to watch out for the other entry costs of purchasing a property such as legal fees, stamp duties, valuations. 

Bear in mind that banks will normally give loans up to 90% of purchase price or valuation, whichever is lower. The problem may arise if the valuations are less than your purchase price, you may have to top up the difference in cash.

 

Tips:

  • Check for some banks or developers who will offer to absorb legal and SPA fees
  • Get the right real estate agent who has knowledge of various mortgage products available in the market and has a good circle of professional connections – bankers, lawyers, and valuers

 

6)        Identify sources of fund for down-payment

First-time home buyers are normally required to fork out a 10% down payment. The balance will be financed through a mortgage.

Tips: 

Other than using cash, there are other sources of funds you may consider to make the down-payment: 

  • Credit card with a zero percent interest rate
  • Credit card with zero or low-interest balance transfer programs 
  • Developer rebates to be a substitute for capital to pay a minimal down payment 

 

7)          Don’t forget to apply for HOC!

The stamp duty holidays and the lower interest rates announced in the Home Ownership Campaign (HOC) 2020 will help save homebuyer quite a bit of money. 

We hope you found these tips helpful to help you secure your first home. If you’re still searching for the perfect home financing to help you achieve your dream home, have a look at what is the alternative way available to finance your house or just drop us any questions so we can help.

 

14 August 2020 | by HomeCrowd team

 

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