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.
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
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:
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).
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.
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.
Other than using cash, there are other sources of funds you may consider to make the 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