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Buying your first home?

In a perfect world, choosing your dream house would be as simple as picking a

fresh ripe apple among shrivelled rotten ones; it'd be a clear simple decision.
No chance of that happening in the real world, however.
Home ownership brings with it a slew of responsibilities and its own fair share
of headaches. So, before proceeding any further, take some time to consider if
your lifestyle and nances make home buying a smart move.
Buying your rst house regardless of new or pre-owned, requires lots of
research; surveying the neighbourhood, doing background checks on the
property developer, asking friends and family with prior home-buying
experience, and approaching a trustworthy agent. Whatever you do, the
ultimate goal is to be well-informed before committing to a long-term debt.

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1. Know if you are ready

In most cases it's better to buy instead of rent, and buy as soon
as you can afford to do so. However, there are a few things you
need to consider before you take the plunge to become a
homeowner.
By buying a home, you may be paying as much monthly as a
renter, when you factor in other expenses such as taxes,
insurance, maintenance, and mortgage interest, which renters
don't pay.
The real benet from buying is that you freeze your monthly
payment for a maximum period of 35 years, and then you stop
paying it altogether. And of course, the house is yours.

Are you ready?

Can you commit to settle down in one place for at least a few
years? If you move around a lot, it may not be a good idea to
buy a home as the cost of buying and selling a home (i.e.
lock-in penalty and RPGT) within a short period of time may
cause you to lose money.
Have you saved up enough for the down payment and other
fees and charges? You may need up to 20% of the price of the
home you intend to buy.
Do you have a clean credit report? This will determine whether
or not you get nancing for your home.
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2. Know how much you can afford

Before you start the actual hunt for a property, you should take
a good hard look at your nances.
a. A typical down payment

10%

Total Down Payment

Example: RM45,000 for a property price of RM450,000

2%

8%

Booking fee

Remaining payment

To be paid to property agent to

draft an Offer to Purchase
agreement

To be paid upon signing the Sales

and Purchase Agreement (SPA).
Represents the remaining down
payment to be paid to property
developer or seller.
Not to be confused for legal fees
to draft SPA.

Example:
RM450,000 x 2%
= RM9,000

Example:
RM450,000 x 8%
= RM36,000

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b. Housing loan eligibility

So, how much can you afford to pay every month for the next
30 to 35 years.?
To determine an affordable price point consider this:
your monthly income, cash you have available now, and how
much you can borrow.
To gauge the maximum property price you can afford, it is
always best to ensure that the total monthly instalments of all
your outstanding loans, and your prospective home loan do
not exceed 60% to 70% of your net income. Net income refers
to your income after deducting income tax and EPF
contributions.
Loan tenure on the other hand is tied to the age of the
borrower. A borrower aged 30 and below is likely to be eligible
for a maximum loan tenure of 35 years (the longest possible).
For borrowers above the age of 30, most banks will require
them to repay their home loans in full before they hit the age of
65 or 70 years old.

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Here is an example of a borrower whose loan

application is likely to be approved by banks:
Age
Monthly net income
Monthly car loan instalment
Monthly personal
loan instalments
Property price
Margin of finance
Loan amount
Home loan interest rate
Monthly instalment
Total debt commitment
a month
Debt commitment % of income

30
RM3,500
RM600
RM200
RM300,000
90%
RM270,000
4.45%
RM1,360/month
RM1,360 + (RM600 + RM200)
= RM2,160
RM2,160/RM3,500 (monthly
net income) x 100
= 62%

From the calculation above, the monthly instalment and other

debt commitments do not exceed 65% of monthly net income.
Hence, with a net monthly salary of RM3,500, this borrower is
most likely eligible for a property priced at RM300,000.
For ease of calculation, use iMoney.mys home loan calculator
to calculate the monthly instalment of a property.
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Withdrawing EPF for down payment

Property buyers are usually required to deposit 10% of the
property asking price as down payment. If you do not have
enough cash saved up, you can opt to withdraw from your
Employees Provident Fund (EPF).
Your EPF is divided into two account at 7:3 ratio -- with the rst
account (70%) kept entirely for your retirement.
The second account (30%) can be used for property purchase,
education, medical expenses and more.

The withdrawal is mainly for

(i) Individual purchase; or
(i) Joint purchase with immediate family members
(parents, spouse, siblings or children) or other individual with
no relationship; or
(iii) To assist your spouse to reduce/redeem their housing loan
balance.

This is only allowed for the member's (or his/her spouse's)

rst home, and for second home if the rst house is sold or
disposed off ownership, but can be made once every year.

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You can withdraw from EPF to purchase your first home if

you are:
(i) A Malaysian Citizen; or
(ii) A Malaysian Citizen who has made Leaving the Country
Withdrawal before 1 August 1995 and has opted to
re-contribute to the EPF; or
(iii) A Non-Malaysian Citizen who:
has become an EPF member before 1 August 1998; or has
obtained a Permanent Resident status (PR),
you have not reached 55 years of age at the time the EPF
receives your application; and
you have at least RM500.00 of savings in Account 2.

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Documents you need are as below:

1. KWSP 9C (AHL) (D5) Withdrawal Form
2. Personal Identication Card which can be a MyKad, Military
Identication Card or a Permanent Resident Identication Card
(MyPR). Others include Police Identication Card and
Verication Letter from Employer stating that the Police number
and Identication Card number refer to the same person
(if without MyKad)
3. Your passport, if you are a non-Malaysian citizen and have
become an EPF member before 1 August 1998.

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c. Other upfront costs

Other than the down payment, there are other costs that must
be borne by the buyer upfront and depending on the price of
the property you intend to buy, these additional fees and
charges can set you back up to an additional RM20,000 or
more.
Do you have the money for down payment ready and have
decided on the right price point? Fantastic! What about the
money to cover additional costs that must be paid up front?

Here is a list of other costs involved:

Legal fees to draft a Sales and Purchase Agreement (SPA)
Stamp duty on SPA
Lawyers professional fee
Bank processing fee for loan facility
Stamp duty and disbursement fee for loan facility
Mortgage life insurance premium
Government tax
Transfer of ownership title fee

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3. Know the right home for you

The old adage when it comes to property buying, "Location!
Location! Location!" still rings true today. The rst step in your
hunt for the perfect home is to gure out what city or
neighborhood you want to live in.
This will signicantly affect property prices. At the current
market conditions, if you can afford a RM400,000 property,
you may be able to get a two-bedroom condominium in
Petaling Jaya or a double-storey terrace house in Puchong.

Once you have shortlisted a few locations,

here are some questions you should ask yourself:
Are there signs of economic vitality: a mixture of young families
and older couples, low unemployment and good incomes?
If you have school-age children or are planning to have
child(ren) in the future, is there a good school nearby?
If the property you are eyeing is under a strata title, check the
rate for maintenance fees and sinking fund. Will you be
comfortable paying this amount every month on top of your
loan repayment?
How is the trafc entering and exiting the residential area?
Always opt for residential areas with more than one entrance
and exit to avoid bad congestion during peak hours.
Is the location strategic? Check if there are access roads or
highways nearby for easy access.
If it is a condominium or apartment, how many parking bays
are provided per unit? Will it be enough? If you do not drive, is
public transportation service available in the area?

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Signing the Sales and Purchase Agreement

There are two types of Sales and Purchase Agreements (SPA).
Standard templates under the Housing Development (Control
& Licensing) Rules 1989 are compulsory for incomplete
properties sold by licensed housing developers registered with
the Ministry of Housing and Local Authority.
For completed properties sold by housing developers, they can
be sold using SPAs that are not based on the above templates.
Housing developers can also apply for the use of their own
SPAs due to exceptional circumstances if approved by the said
Ministry.
Laymen may not be able to understand or identify different
and new clauses added into this type of SPA. Hence, buyers
would benet from using a lawyer when buying from a housing
developer.
The non-standard SPA is also used for properties sold in the
secondary market. This type of SPA need not follow any
specic templates. Again, the expertise of a lawyer is needed
to ensure the SPA protects you as the buyer, and not just the
seller.

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4. Know how to get a loan

Securing nancing for your home can be a daunting process. If
you are buying a property from a developer, chances are you
will have to apply for a home loan from the property
developers panel bank.

Semi-flexi Loan

The usual maximum margin of nance you can obtain is up to

90% of the purchase price of the house you intend to buy.

The loan instalment is automatically deducted from the current

account every month and transfered to the home loan account.
By depositing additional sums of money into the said current
account, youll also be able to offset your principle loan amount
and reduce the interest amounts on your home loan.

a. Types of home loan

There are various types of loan that you should be aware of.
Here are three types:
Basic Term Loan
A Basic Term Loan has a xed repayment schedule, where the
monthly instalment you pay is the same throughout your entire
loan period.
A Term Loan usually does not allow you to reduce your loan
interest with advance payment. Any additional payment you
make is treated as pre-payment for future instalments, and does
not affect the total interest for the loan.

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This type of loan enables borrowers to make advance payment

to lower their home loan interest amounts.

This is suitable for borrowers who may be able to make more

repayment every now and then.
Full-flexi Loan
Similar to a Semi-flexi Loan, a Full-flexi Loan allows borrowers to
make additional payments to reduce the principal amount and
ultimately save money on the total interest payments of the
loan.
Typically, banks provide a Current Account that links to the home
loan.
However, a Full-flexi Loan makes it even easier to withdraw the
additional payment anytime they want without any formal
request or additonal charges. A Full-flexi Loan is suitable for
borrowers who have fluctuating income as it allows them to
make additional repayment as and when they have the extra
cash.
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The main features of each type of loan and the best rates available are compared below:
Basic Term Home Loan

Semi-Flexi Home Loan

Full-Flexi Home Loan

Repayment schedule

Fixed every
month

Additional payment on top of normal

monthly instalment allowed

Additional payment on top of normal

monthly instalment allowed

Linked Current Account

Optional

Optional

Compulsory

Additional payment

Treated as pre- payment

for future installments

Automatically reduces
principal amount

Automatically reduces
principal amount

Withdrawal of additional
payment from linked
Current Account

No

Yes subject to request and

banks approval

Yes. No request required

The best loan offered by banks vary depending on loan amount

and loan tenure. A quick way to compare and identify the best
rates available is to use an online mortgage calculator available
at iMoney.my.
The Base Lending Rate (BLR) is a base interest rate determined
by Bank Negara Malaysia (BNM) that banks refer to internally in
deciding the interest rate to charge for loans given. Currently,
the BLR is at 6.85% (as of July 2014).
However, this will be changed to Base Rate on January 2, 2015,
as announced by Bank Negara Malaysia. This new framework
will allow individual banks to determine the new base interest
rate based on certain factors.
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The decision on the type of home loan to choose ultimately

depends on ones preference but Semi or Full-flexi loans are
generally preferred for its flexibility and savings potential by
those with spare cash and a flexible income. Fixed rate home
loans on the other hand give you the certainty that your home
loan repayments will always remain the same every month.
b. Loan agreement
Upon signing the loan agreement, you will be required to pay a
stamp duty on the loan amount. Like the legal fee to draw up the
SPA, the stamp duty on the loan amount is regulated by law and
usually represents 0.5% on the nal approved loan amount
(which could be lower than the loan amount you initially
requested).
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c. MRTA vs MLTA
Upon the execution of the loan agreement with the nancial
institution you have chosen, the loan ofcer may ask you to take
out a mortgage life insurance.
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There are two types of mortgage life insurance that home

buyers in Malaysia can take up.

Providing a home for your dependent is a good thing, but if the

home loan is not settled in full, it can turn into a burden for your
loved ones in the event of death or total permanent disability
(TPD).
Mortgage Reducing Term Assurance
(MRTA)

Mortgage Level Term Assurance (MLTA)

Protection

Protection, saving, and cash value

Sum insured reduce in according to loan

tenure

Sum insured remains the same on a xed level

sum assured basis.

No

Yes

Bank

Anyone nominated by policy holder

Usually nanced into home loan

Self-nanced

One-time lump sum payment

Periodic (monthly, quarterly, semi-annually,

or annually)

Low

High

No. It has a reducing cash value, which

drops to nil at the end of the loan tenure.

Yes. It has a guaranteed xed cash value

throughout the loan tenure.

Insurer will remit any outstanding loan

amount to the bank and beneciary will
receive the home.

Insurer will remit any outstanding loan amount

to the bank and beneciary will receive the home
plus cash.

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d. Final payment
After signing the loan agreement, your bank will remit the
remaining purchase price (i.e. 90% of the property price) in full to
the seller/agent (if buying completed property) or in stages to
the property developer (if buying a property still under
construction).
e. Transfer of title
The nal step before taking possession of the keys and the
house is to have the title (evidence of ownership) transferred to
your name. Doing so will once again require the involvement of
your lawyer. You are also required to pay a stamp duty fee
equivalent to a percentage of your house value as follows:
First RM100,000: 1% stamp duty
Next RM400,000: 2% stamp duty
Excess of RM500,000: 3% stamp duty
Once the title has been successfully transferred to your name,
you'll be a proud owner of a house. Congratulations!

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5. Know the property market in Malaysia

a. Real Property Gains Tax (RPGT)
RPGT increased from 15% to 30% for properties disposed
within the rst three years which is likely to affect investors
sentiment and could cause a drop in interest in the secondary or
sub-sale market.

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This spells good news for rst-time home buyers as the property
prices will escalate at a slower pace, making them more
affordable.

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b. Developer Interest Bearing Scheme (DIBS)

Developer Interest Bearing Scheme (DIBS) is a scheme
commonly offered by developers of newly launched properties
still under construction to entice home buyers. Under DIBS, the
property developer will bear the home loan interest incurred by
you throughout the period of property construction.
While DIBS benets home buyers by freeing up cash that would
otherwise be used to service the home loan interest for
investments, it has been reported that property developers have
been marking up property prices by 5% to 15% in order to cover
the interest absorbed by them during property construction.
As per the announcements doing the tabling of Budget 2014,
property developers are no longer allowed to offer DIBS.
Similarly, nancial institutions are prohibited from providing nal
funding for projects with DIBS.
The abolishment of DIBS is expected to curb speculation and
inflated pricing but will also affect the way a home buyer will
plan his or her nances to be able to afford a home.

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With DIBS Before

Without DIBS Now

You pay an initial payment

You take up a loan to

buy a property

The developer bears the loan

insterest during this stage

Construction of
property

You only start paying loan

interest from here on

Property completed

(usually 10% of the property price)

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You pay an initial payment

(usually 10% of the property price)

You start paying

loan interest from here on

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c. New housing regulations in Penang

In a bid to ensure public housing and affordable homes are
accessible to low and middle-income rst-time home buyers,
the state of Penang has enforced new housing regulations on
February 1, 2014.
Under this new housing regulation, buyers will have to be
qualied as a listed buyer by the state housing department if
buying the following pre-owned properties:

Additionally, the new regulation stipulates that foreigners are

only allowed to purchase a property with a minimum price of
RM1 million or RM2 million for a landed property on the island.
On top of the existing RPGT for disposal of properties within the
stipulated timeframes, disposal of properties in Penang within
the rst three years will be charged a 2% levy for citizens and 3%
for non-citizens.

Low cost home

(bought for RM42,000 or less by seller)
Low-medium cost home
(bought for RM72,500 or less by seller)
Affordable home on mainland
(bought for RM250,000 or less by seller)
Affordable home on the island
(bought for RM400,000 or less by seller)

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New property regulations in Penang

Citizen
Below RM400,000
Banned from selling within
ve years

Non-Citizen
Below RM250,000
Banned from selling within
ve years

Minimum property prices

Strata title : > RM1 mil
Individual title : > RM2 mil

Public Housing RM72,500 or less

3% Levy

Banned from selling within

10 years

Except for properties for industrial use,

or if it promotes employment, education
and human talent.

2% Levy
All properties sold within
3 years

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d. My First Home Scheme (MFHS)

If you nd yourself struggling to save up the 10% down payment
plus the additional charges to purchase your rst home, you can
consider opting for My First Home Scheme (MFHS).
Introduced in 2011, this scheme aims to help young adults buy
their rst home by allowing them to obtain 100% nancing from
banks and enjoy a 50% stamp duty exemption (exemption valid
till December 31, 2014). To qualify, the borrower must meet all
the following personal and property criteria:
Personal criteria:
First-time home buyer
Malaysian citizen aged 35 and below
Gross income of RM5,000 or less per month (single
borrowers); combined gross income of less than RM10,000
per month (joint borrowers)
Existing repayment obligations do not exceed 60% of
net monthly income or maximum limit imposed by
the lending bank, whichever is lower.

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Property criteria:
Minimum property value of RM100,000 and
maximum property value of RM400,000.
Residential properties bought for owner occupation
only.
Remaining lease of 60 years and above for leasehold
properties.

In addition to the above criteria there are also nancing

requirements that must be adhered to under MFHS:
Maximum loan tenure of up to 40 years or until the
age of 65, whichever is earlier.
Amortising facilities only, where the principal of the
loan is paid down over the life of the loan according to
an amortization schedule.
Repayment of monthly instalments via salary
deduction or standing instruction.
Insurance/Takaful is compulsory.

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6. Know your terms

Appraisal Getting a property appraisal is a
standard procedure in a home loan application process. Banks
will approve a home loan based on the appraisal value of the
property they want to buy.
Base Lending Rate (BLR)
According to ofcial denition, BLR is a minimum interest rate
calculated by banking institutions based on a formula which
takes into account the respective institutions cost of
acquiring funds and other administrative charges. In short,
BLR is the base interest rate that banks refer to internally,
before they decide how much to charge for your loan.
Central Credit Reference Information System
(CCRIS) In Malaysia, Bank Negara Malaysia (BNM)
maintains CCRIS, a computerised database of credit reports
which contains credit scores. CCRIS receives credit updates
from various nancial institutions and generates individual
credit reports, which are made available to nancial
institutions, individuals and even companies upon request.
Find out how this can affect your loan application.

Exit penalty A penalty of 2% to 5% of the original loan

amount incurred for full settlement of the home loan within the
lock-in period.
Guarantor A party who agrees to be responsible for the
payment of a borrowers debts should that borrower default/fail
to repay their loan. Guarantors are legally obligated to bear the
debt of the borrower in the event he or she defaults on the loan.
Homeowner insurance A form of property
insurance that reimburses the policy holder in the event of
damage to the home and its contents. Homeowners insurance
also provides liability coverage against accidents that happen in
and around the insured home or on the property.
Individual/Strata title An individual title is given to land
holders of landed property, such as terrace houses, bungalows
and semi-detached houses. However, landed property with
shared facilities such as condominiums, flats, apartments and
townhouses are usually initially held under a master title, before
strata titles are drawn up and distributed to its owners

Debt Service Ratio (DSR) DSR is calculated, as per all your

monthly debt repayment obligations divided by your monthly
take-home income. Bank Negara recommends that
Malaysians do not exceed a Debt Service Ratio (DSR) of 60%
(but some banks may allow up to 70%).
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 Loan principal The loan principal refers to the amount you

actually borrow, not taking into account the interest. At the
beginning of your loan repayment, interest accounts for a higher
percentage of your monthly repayment. As the loan repayment
progresses you pay less interest and more goes toward the
principle.
Loan tenure This means period or number of years it will
take to repay your home loan in full.
Lock-in period A period of time usually between three to ve
years in which an exit penalty will be imposed on the borrower
for full settlement of the loan. Find out why you should pay
attention to lock-in period.
Margin of finance The margin of nance refers to the loan
amount borrowed based on a percentage of the propertys
value. For example, the typical margin of nance approved by
banks is 90%, thus requiring borrowers to rst pay a down
payment of at least 10% of the propertys value.

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Refinancing Home loan renancing is the act of taking up a

new home loan offering better terms to fully pay off an existing
home loan. This is usually done when the value of the home has
appreciated, and after the lock-in and RPGT periods have ended.
Stamp duty Stamp duty is a tax on loan documentations
that requires a stamp to be purchased and attached to the
documents. Stamp duty must be paid before the documents are
legalised.
Sinking fund To be used for major replacements of parts of
common property. The fund should not be confused with
service charges meant for the general maintenance and
management of the common property and for the other
services the developer has agreed to provide.

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14 steps to your first home

Check your readiness

Check your housing

affordability

Compare and choose

the best home loan

Apply for home loan

Choose the right

location and property

Check how much

upfront cash you need

Pay the balance of

your down payment

Sign Sale &

Purchase Agreement (SPA)

Sign loan agreement

upon approval of loan

Buy mortgage
life insurance

Negotiate for the best price

Pay the booking fee

(2% of down payment)

Transfer of title

Balance disbursement
by bank to seller

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