Simple Steps to Follow Before Buying a Property

Written By Muhammad Farid .

The Ultimate Guide to Budgeting for Your Property

Ready to buy your first property? Before diving into the property market, there’s one crucial factor you’ll need to master: B U D G E T. Understanding your finances and planning ahead is the foundation for a successful and stress-free home-buying journey.

What Comes First: The Loan or the Property?

Many first-time buyers wonder: Should I look for a property first or apply for a loan?

The answer? Start by assessing your finances and understanding how much you can borrow. Pre-qualifying for a loan allows you to set realistic expectations and avoid disappointment.

For example: If you fall in love with a property priced at RM900,000 but the bank approves only RM700,000, you’ll face a tough decision. Either come up with RM200,000 out of pocket or let it go.

How Much Do You Need to Earn to Afford a RM900,000 Property?

Down payment (10%): RM90,000

Loan amount (90%): RM810,000

Gross annual income required: RM140,000

This calculation assumes no other monthly debt, a 30-year loan term, and an interest rate of 3.2%.

Essential Costs of Buying a Property

To budget effectively, you need to be aware of the costs associated with purchasing a home. Here’s a breakdown:

Earnest deposit:

  • 2% of the agreed purchase price.

Down payment:

  • 10% of the agreed purchase price (including earnest deposit).

Sale and Purchase Agreement (SPA):

  • Includes legal fees, stamp duty, and legal disbursement costs.

Loan agreement:

  • Covers legal fees, stamp duty, and legal disbursement costs.

Real estate agent’s commission:

  • Maximum of 3% of the property’s sale price.

Valuation fee:

  • Ranges from 0.25% to 0.04% of the sub-sale property’s value.

Transfer of ownership (MOT):

  • Cost depends on the property price tier.

Government tax on legal agreements:

  • 6% of the lawyer’s total fees.

Bank processing fee:

  • Between RM50 and RM200.

Perfection of Transfer (POT):

  • Covers MOT legal fees, stamp duty, and disbursement costs.

Perfection of Charge (POC):

  • Similar to POT but stamp duty is fixed at RM40.

Quit rent and assessment fees:

  • Quit rent: Based on property size (per square foot).

  • Assessment fees: Calculated based on the property’s estimated annual rental value.

Maintenance fee and sinking fund (for strata properties):

  • Maintenance fee: Shared cost, calculated based on development factors.

  • Sinking fund: Typically 10% of the maintenance fee.

Mortgage insurance:

  • Premiums depend on the type of coverage chosen.

Utilities:

  • Includes water, electricity, sewerage, and Internet services.

Renovations:

  • Should not exceed six times your monthly household income.

Save Smarter for Your First Property

Owning your dream home means making smarter financial decisions:

Trim unnecessary expenses:

  • Skip luxury gadgets or non-essential purchases.

Avoid car loans if possible:

  • A car’s value depreciates 10% the moment it’s driven out of the showroom. This limits your housing loan eligibility.

Build an emergency fund:

  • Unexpected expenses like renovations, maintenance fees, or legal charges can add up.

Key Takeaways for First-Time Home Buyers

  • Start with your finances: Pre-qualify for a loan before shopping for properties.

  • Understand all associated costs: From legal fees to maintenance charges, budget for the unexpected.

  • Cut down on liabilities: The fewer loans you have, the better your chances of getting a higher housing loan.

Muhammad Farid .
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