What You Need To Know When Planning For Your First Home Purchase

Buying one’s first home based on one’s own effort and starting from scratch is the most challenging, yet fulfilling goal when it is achieved.

The luckier individuals are those whose parents either help out with the down payment, present it as a gift or those who get preferential rates from the organisations they work for. And then there are those who inherit the property or properties, most of which are already paid up.
This article is focused on first time house buyers who are going it out on their own or as a joint effort with their spouse. Here is a quick process to get started:

CONSIDERATIONS
These are key areas to plan for:
Type of house
Location, distance will determine your monthly travelling costs
How much installment you can afford to pay, banks look at your DSR (see point 10 below)
Your age now, preferably paid up before you retire unless you want your children to bear the burden with you (source: https://ringgitplus.com/en/home-loan/BSN-GIRO-Home.html)
Buffer financial reserves for house rental whilst your new home is under renovation
House structure insurance premium which is based on value of house and types of coverage required.
House content insurance premium which is based on value of content and built-up of house. Take note of other cost besides down payment and installment as shown in Table 1: Quick Calculation. If you allow your total insurance premium to be built into your loan, you are paying interest on your insurance premium. It may be better to pay annually and avoid interest.
Debt Servicing Ratio (DSR) 60% to 80%, depending on income and the bank loan taken. The higher your income bracket, the higher percentage of loan you will be entitled. Many banks take into consideration your other debts; e.g. car loan, personal loan, credit card loans and these may form part of our DSR.
Debt Servicing Ratio (DSR) 60% to 80%, depending on income and the bank loan taken. The higher your income bracket, the higher percentage of loan you will be entitled. Many banks take into consideration your other debts; e.g. car loan, personal loan, credit card loans and these may form part of our DSR.

The above table gives you an idea of the other costs incurred for a house priced at RM500,000. A savings of RM20,000 would be insufficient to cover said costs. Furthermore, if your DSR is lower, you may need to consider a lower cost home or come up with more downpayment.
Young adults can check out the Skim Perumahan Rakyat 1 Malaysia for more affordable homes or take a look at websites in Table 2 to check out available housing loans and calculate your installments and how much premium you need to pay for your insurances.

It is very important to remember to live within your means. Start with a modest property if you need to, once you have paid your installments for 5 years or more, you would have a small portion of the home paid up, this is called equity on your home.
Try to pay up a bit more when you get your bonus at year end as every bit helps you to save on interest. Be sure to inform the bank that you want to reduce the principal amount or else the extra will be sitting in a suspense account and your principal amount will not be reduced.
If you have moved up the salary scale, you can consider a bigger home using the equity on your home (the paid up portion), together with a higher DSR. It may interest you that Warren Buffett stayed in the same house since 1958. He invested well and lived frugally. (www.investopedia.com/articles/financialcareers/10/buffett-frugal.asp)
You would be better off upgrading your home once you have decided on with your dream home (not necessarily your first). Put aside a sinking fund and every 5 years, repaint, repair and renovate. Your home will feel new and rejuvenated, plus it will cost less than buying another home.
If you have not even started saving for a new home and don’t know how to work out a plan, talk to a Licensed Financial Planner. Financial Planning Association of Malaysia (FPAM) can connect you with them. Speak to a few before deciding on one. Ask them about their fees and scope of service before engaging one. They should look at your income, expenses and debts before helping to formulate a suitable savings plan.
With this, I wish all first home buyers the very best in their quest for the right property. Do your homework before you sign the Sales & Purchase Agreement.