Whenever you start imagining your dream home, you also may begin to worry whether you can afford that home, or be reduced to renting homes all your life. Determining whether you can afford a specific house is one of the most important questions in your life that you need to answer. In fact, it is as important as deciding who your life partner may be.

Saddling yourself with a home loan that you can barely afford is a big risk, and you should only spend what is within acceptable reason. Here are the three main factors that you have to be absolutely clear about when deciding whether you want that home loan.

1. Available Cash
How much do you have currently in your savings? Is it enough to pay the two biggest upfront costs when buying a home?

These two largest costs include a down payment for the house which is about 10% of the total price, as well as auxiliary costs, totaling up to several thousand Ringgit. The extra costs incurred when buying a house are as listed below:

• Stamp duty for transfer of ownership title (also known as memorandum of transfer or MOT)
• Sale & Purchase Agreement (SPA) legal fees
• Stamping for SPA – Less than a hundred Ringgit
• SPA legal disbursement fee – A few hundred Ringgit
• Loan facility agreement legal fees
• Stamp duty for loan – 0.5% of loan amount
• Legal disbursement fee for Loan Facility Agreement – A few hundred Ringgits
• Fee for transfer of ownership title – A few hundred Ringgit
• Mortgage Reducing Term Insurance – Think of it as a life insurance for your home loan. It can come up to RM1, 000 or more, but this may be optional with some banks.
• Government Tax on Agreements – 6% of total lawyer fees
• Bank processing fee for loan – RM200

2. Loan Affordability
With the average prices of apartments in the Klang Valley ranging from RM400,000 to RM800,000 or more, the loan repayments per month (at a 90% financing margin and 30 year loan period) should be about RM1800 to RM3600 per month.

If you follow the advice of experts who recommend not taking loans exceeding one third of your income, you would have to earn between RM5400 to RM10,800 a month to afford an average house in KL and its surrounding areas.

An alternative to this is of course to take a joint loan with your spouse of family, thereby cutting the monthly payment by half. You would also want to find out more about affordable housing projects by the government, like PR1MA homes and RUMAWIP.

3. What is Your Monthly Net Income?
As stated above, your net income after minusing EPF and SOCSO should fall comfortably between RM5000 to RM11,000 in order to afford housing in the Klang Valley. If you don’t have that amount, your next best option is to look for something more affordable in areas further from the city.

To be safe, all your bills and loans, including the housing loan you plan to take, should not exceed 70% of your net monthly income.


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