There are just so many things that we need our money for, from daily expenses to monthly spending. All these scarce spendings couldn't compare your intention to purchase a house. The very thought of taking a lot away can make you uncertain about this huge investment. That's why a proper budgeting is the way to go.
Here's the case in point for your quick reference:
For you to understand this concretely and know your house budget, there are some factors you need to consider. It isn't only about deliberate calculation as you need to have a long-run perspective. Let's not beat around the bush and get down to the real deal.
First thing first, you need to have the idea of how much monthly repayment you could afford. To simulate this, let us give you the common scenario for most first-time buyer living in Kuala Lumpur:
|Monthly Income (NET)||RM2,800|
|Monthly Debt||Car loan: RM500|
If you earn RM2,800 a month, realistically you cannot afford a house more than your income. You might have the idea of purchasing a house lower than RM1,800 monthly installment. Would RM2,800 a month be enough for you to purchase a RM1,800 installment house? This is where you need to calculate your DSR.
* Monthly household income (NET) — The total amount can be a combination of your income & your partner. Make sure to determine the amount after EPF, SOCSO, etc. deductions.
* Monthly debt installment — The total amount you pay monthly for certain services, products or assets.
Why do you need to know your DSR? Purchasing a house will demand you to apply for a house loan unless you are among the minor cash buyers. Banks will only be loaning you the maximum amount if your DSR is less than 70%. The likelihood of your loan request to be accepted is higher if you have a low DSR percentage. It represents your obligation to existing commitments.
Let's use the same example of buying a house with RM1,800 monthly instalment. By using the formula, this is the DSR for RM2,800 monthly income and RM600 monthly debt.
→ [(existing debt + monthly house installment) / net income] * 100
→ [(600+1,800)/2,800] * 100 = 85.71%
If your DSR exceeds 70%, you have only two option— to improve your monthly income or reduce your monthly installment debt.
Once you are assured about your good DSR percentage, you may proceed to calculate whether your monthly income may qualify you to buy the properties in Malaysia.
You can actually determine the minimum household income for different house prices. By using the same example, let us simulate to you the method:
→ [(monthly installment + monthly debt)] * 100/70
→ [(1,800 + 600)] * 100/70 = RM 3,428
If your monthly income is RM2,800 and you are eyeing for a monthly house installment of RM1,800, know that it is far from your budget. It might seem possible, but after calculating the DSR and knowing the minimum monthly income, you can circumscribe the possibility.
You can alter your lookout to a more realistic house price if you know your DSR percentage and the minimum household income to purchase.
A wee heads up that buying a house is more than just the monthly installment. Your current perception might be far-fetched from the actual reality because the budget should be more as we discussed here.
Besides the above calculation, you should also have the budget for the down payment. Usually it takes you around 10% of the house price. The 10% down payment is just an initial proposition. You can pay more for the down payment so the interest rate for your house loan will be reduced. This will allow you to cast your budget for each month to pay less.
To plan your budget, you should also think from a future perspective as buying a house demands long accountability from you. If you want to buy another asset and engage with a different loan, this will affect your monthly budget.
For you to purchase the right house will signify your quality decision. You don't want to end up lower down your budget to buy a house, but it doesn't fit your family lifestyle. Before buying the house, always ask this: Does it allow your family to grow financially, psychologically or physically? While choosing the right house equals the location, you might want to know that it's relatively connected to your budget.
The house prices in Malaysia may share a similar pattern — the nearest it is to the city, the higher the price depending on the built-up and land size. If you have more budget and the house might be right for your family, of course you can rest your money to the city side. Living in a suburban city such as Kajang and Rawang might demand less from your pocket while still offering the right space for your family to grow in.
By reading this guide, you can calculate the DSR and know concretely how much monthly installment you could afford. Bear in mind that you should also have a long-term viewpoint. That's why you should also consider your future debt, the right house for your family and other extensional factors as we discussed in our insight and guide. Once done, it is the time for you to wander around the net, sales gallery or visiting our page for some new projects to match your budget.