If you think it’s impossible to ever save up enough for a downpayment, we’re here to tell you that you can, except it, might take a couple of years as well as lots of discipline and commitment! Wanting to purchase your first property can be as easy as 1-2-3… as long as you’re able to overcome the first (and largest) roadblock: the downpayment! Now, the minimum amount that’s generally forked out for a downpayment is 10% of the property’s price, and you’d probably be thinking how long that’s going to take you to save up.
Well, that’s all depending on a couple of key factors:
- What’s your monthly salary like
- How much you’re able to set aside each month
- The price of the property you’ve set your sights on
- How soon you want to move
While there are some who may want to go for a 0% downpayment plan, many experts are of the agreement that if you’re able to pay more for the downpayment, the less your mortgage loan will cost. The reason for this is because you’ll end up paying less for the interest rate that’s charged on your loan. Let’s take a look at a quick example.
So, let’s say you’re planning on purchasing a property with a price tag of RM300,000. If you allocate a downpayment of RM30,000 (10% of the property’s price), and apply for a home loan with an interest rate of 4% and a tenure of 35 years, that would compute to roughly RM1,196 in monthly instalments based on the home loan amount of RM270,000.
What’s interesting to note is the part on the calculator which says, “Total Payments” and “Total Interest Payments”. Did you notice those? You’d better, they’re very important!
Time To Save Up For A Downpayment Then
Since you now have a rough idea on how important a downpayment is in ensuring you don’t have an overpriced asset on your hands, let’s take a look at how long it would take you to save up for that 10%. We’ll be using the same example as given earlier (above): dream home worth RM300,000, a downpayment of RM30,000, and monthly instalment of RM1,196.
Assuming you earn RM3,000 nett (after the mandatory tax, EPF, and SOCSO deductions) a month, after deducting the instalment, you’ve now got RM1,804 left. Now, assuming you decide to save RM300 every month from that leftover amount to put towards a downpayment of RM30,000, it’ll take you 100 months to reach that goal. 100 months = 8.3 years! If you got a shock, it’s the unfortunate truth. According to the Salaries and Wages Survey Report Malaysia 2018 by the Department of Statistics Malaysia (DOSM), the average salary for employees stands at RM3,087.
For someone who’s living on their own, they’ll have to worry about a myriad of other costs like rent, food, transportation, phone bill, and savings for an emergency. That’s why banks would always want to check on an individual’s Debt Service Ratio (DSR) before they can be approved for a home loan. This is a formula which will show if you’re able to repay your loan, or if you’ll be barely surviving each month.
The calculation goes like this:
5 Ways To Help You Save For A Downpayment
A 10% downpayment is a considerably large amount of cash and can seem almost impossible to reach for many Malaysians. It’s one of the reasons why people usually take years to save up every single Ringgit they can. If you want to do the same too, here are some tips and advice for you to get started on your home buying journey:
1. Plan And Know How Much You Need
Research, research, and RESEARCH on all the localities in order to find the one you most prefer. From there, you can then get the average prices of homes in the neighbourhood, and calculate the downpayment required.
In Malaysia, most banks offer up to 90% of the property’s price (margin of financing) for your first two residential properties. If you receive that 90%, you need to prepare a 10% down payment to cover the rest of the property’s price. Say you’re targeting to buy a condo in Cheras that’s going for RM400,000. You must have a minimum of RM40,000 for the down payment, be it from your savings or money from your parents or siblings.
After that, it’s all down to your discipline, commitment, and patience! Avoid unnecessary expenses (is that third cup of bubble tea really necessary?) or taking on more commitments, like a loan for a brand new car.
Time is crucial here, so make do with methods such as using public transportation and eating economical meals. Better yet, you can meal prep at home and save more money in the long run!
2. Don’t Ignore The Other Costs Involved
Did you know that the downpayment isn’t the only cost you’d need to be worried about? There are other costs that go towards home ownership, i.e. legal fees, stamp duty fees, and land tax to name a few.
Healthy cost-cutting habits will help here as well, if you don’t want to be faced with the sudden shock of not having enough money in the end to cover these miscellaneous costs.
3. Get Your Home Loan Pre-Approved
What this means is that you basically use an online solution to help you check on how much of a home loan you can get approved for, before you apply to the banks.
For example, the PropertyGuru Loan Pre-Approval solution will provide you with a 99.9% accurate sum of how much you can borrow (it’s free to use!). From there, you’ll have a clearer picture of the price range of properties you can afford.
It’s better to use solutions like this, rather than go through the whole loan application process only to find out your loan got rejected (as the property is more expensive than what you can actually afford), and leaving a black mark on your credit report.
You can also use iMoney’s home loan calculator to automatically estimate your monthly instalments. As most financial experts recommend that you allocate no more than one-third of your total income to pay off your home loan, this means you or your household should have an income of at least RM6,390 per month to afford an RM500,000 home.
Take note that Malaysian banks generally allow you to hold loans (including car loans, personal loans etc.) of up to 70% of your income if you have a relatively good credit score, so you can always choose to increase your monthly instalment and shorten your loan term. But make sure you’ve done the math and understood the financial implications before you commit!
4. Increase Your Monthly Salary
Sometimes, just saving up a bit each month may not be enough. Start considering other ways to increase the amount you bring home, simply because more income = more savings.
Apart from asking your boss for a raise, you could also consider investing your money, or using your skills/talents for freelancing job opportunities (over the weekend, of course!). You could also generate some side income by taking part in the thriving online community and opening up a small business that allows you to sell homemade goods.
5. Safeguard Your Downpayment Fund
If you’ve already been following the pointers above and have been able to put aside quite a healthy amount of money towards your downpayment, good for you! However, what if one day you were to meet with an unfortunate road accident that leaves you hospitalised and in need of emergency cash? It’s a fact that we won’t be able to predict the future, nor be fully prepared for it, but what we can do is safeguard our finances.
Make sure you have a separate savings fund which you can dip into for emergencies, so you don’t need to touch that precious downpayment. In addition, you could also sign up for a health insurance plan that comes with an accident cover, as that will definitely be a life-saver (literally) when it comes to anything medically-related.
Credits: PropertyGuru
