For many Malaysians, owning personal property seems to be the ultimate aspiration. There’s nothing quite like being the lord of your own castle. Having a place to nail up your own photos without worrying about deductions from your security deposit is also a plus.
But, if you’ve only started out building your career, should you consider buying a property of your own?
There are many considerations before you set out to buy your own house. The first is of course is if the cost of owning your own property can fit into your budget. To begin, figure out the proportion of your current commitments to your income. Most banks will allow you to borrow if the total of your proposed monthly instalment plus your existing loan instalments add up to 70% of your total income.
Here’s how it goes. Say that you take home a net income of RM3,000 a month, and the total instalment for your existing loans is RM700. A bank may approve your mortgage application if the sum of the instalment on your new loan and your existing loans don’t exceed 70% of your net income. Note that terms between banks may vary, so it’s best to do some checks on your own, but we’ll use these figures as a guide for now.
How does that work out?
Right, remember that your take home pay is currently RM3,000, so, 70% of that is RM2,100. Your total existing loan instalments are RM700. Which means that you have a balance of RM1,400 (RM2,100 – RM700). So, for your mortgage application to have a chance at approval, the proposed instalment can’t exceed RM1,400.
Using a home loan eligibility check here, with a loan tenure of 35 years and an effective interest rate of 5.60% per annum, for RM1,400 a month, you can borrow up to RM257k.
So far so good? Awesome!
Besides monthly instalments, there are other costs to owning a house that needs consideration. These include legal fees for transfer of titles, annual premiums for fire insurance, maintenance fees (for serviced apartments), and local taxes. These costs can quickly eat into your monthly budget, and if you’re not careful, the balance of your net income may not be enough to cover these expenses.
If you’ve only recently began your ascension up the corporate ladder, it’s also good to consider if you’ll be changing your job soon. Buying your own house can reduce your mobility. If you’re lucky, your next job nearby your old one, so you won’t have to pay more for travelling. But, if your new job is further away, you’ll need to think about the extra commuting cost and its effect on your budget.
Another thing to consider before buying your own property is to ask yourself why you’re doing it. Is it because you fear that you’re missing out, after comparing yourself to your peers? Or is it due to societal pressure? That somehow owning your own property means that you’ve made it?
If your decision to become a landlord is because of what people think of you, you’re doing it for the wrong reasons. A mortgage is a long-term commitment that takes a large chunk of your monthly budget away from you. So, if you’re going to get into it, be sure that you’re doing it on your own terms, and that you’re financially ready. Or else, if you haven’t thought it through, you could set yourself up for a lot of financial stress for quite some time.
Instead of buying your own property, there’s always the option of renting out a property or a room (if you’re not yet married). If you do it right, renting can be cheaper than owning your own house. You won’t have to worry about paying quit rent, service fees, insurance or anything else. Your landlord will take care of that for you.
Since rents are short term commitments, you’re a little more flexible if a good job opportunity knocks on your door and you need to move. Depending on your rental agreement, you might have the option of ending your tenancy early, allowing you to look for a place that makes commuting to your new workplace easier. It’s awesome!
The downside of renting is that your monthly instalments don’t go towards ownership of your own property, but positively you’re more in control of your monthly commitments and have a bit more freedom to move around. Being able to free up your money means you can do more things with it. Ideally, your priority should be about building up your savings first. You should aim to have at least 3 months of your total expenses saved up.
At the end of the day, this is not to discourage you from buying your own property. By all means, if you have the resources and are comfortable with getting into a mortgage, go for it! But if you’re still unsure, it might be best to look at your existing commitments and figure out if you’re financially ready to take on any extra debt. Most importantly do this on your own terms, not because you want society’s approval. There really is no shame in renting, but there’s a lot of distress in keeping your head above water just because you got a loan you can barely service.
What do you think? Do you think you should buy a property as soon as possible, or is it wise to wait until you’re more stable?