The purchase of one’s first home is among the most exciting milestones in life. But, with median prices of RM300,000, buying a home is likely the biggest financial commitment made by the average Malaysian.
Lack of experience could leave first home buyers vulnerable to making mistakes. Here are some of the common pitfalls homebuyers make when purchasing property.
1. Buying solely based on emotions
Buying a home can be a stressful and emotional process, one that should be approached rationally. The practicality involved with commute times, traffic, and nearby amenities has to be taken into account, not just the curb appeal of a property.
First home buyers should also avoid overcommiting financially in pursuit of a dream home. At least 20-30% of gross income should be saved for emergencies.
Stretching your budget beyond a comfortable margin to purchase property can have long-term financial consequences that cannot be easily undone.
2. Not checking loan eligibility and credit reports
Before looking for homes on the market, check your credit history for issues that could harm your loan approval.
Banks use the CCRIS database by Bank Negara to check a borrower’s information, including outstanding debts and previous loan applications. You can check your CCRIS information online via the e-CCRIS website.
Alternatively, obtain a CTOS report, which includes CCRIS information as well as your credit score to help you better ascertain the likelihood of getting a loan approval.
If your credit score is poor, consider steps to improve your credit history such as settling outstanding debts. Ideally, you should manage your current debts for a debt-service ratio of between 30% and 40% of your income.
You could also obtain pre-approval from a bank, which means it has, in principle, agreed to lend you a specific sum for the purchase of a home. Besides saving time, getting pre-approved provides extra assurance to property agents and sellers that you are a ready buyer.
Since loan tenures can span up to 35 years, make sure you shop around for favourable interest rates and mortgage terms.
3. Underestimating upfront costs
While developers often offer rebates and discounts, the high upfront costs involved with purchasing a property could be a hurdle for first home buyers.
A general rule of thumb is that you need 15-20% of the property’s price in cash to fund the purchase of a subsale property. These upfront costs include:
- 10% of the purchase price as down payment;
- legal fees and disbursements for the sales and purchase agreement (SPA) as well as loan agreement;
- stamp duty on SPA and loan agreements;
- about 0.3% for the property’s valuation fee; and
- bank loan processing fees.
Financing schemes are available to help first home buyers purchase a subsale property, including full loans and incentives such as stamp-duty exemption for properties priced RM500,000 and below.
4. Ignoring hidden costs
Besides the upfront costs of purchasing real estate, there are other expenses that might not be immediately apparent to first-time buyers.
Buyers of strata properties must factor in monthly payments of maintenance fees and sinking funds, in addition to their monthly loan repayments.
Homebuyers must also take into account utility payments. TNB tariffs for commercial properties is nearly double the residential rate, so do check whether your property has a residential or commercial title.
Home ownership also entails paying annual property taxes. Quit rent or parcel rent is payable to the state government, while assessment tax must be paid to the local city council.
One-off expenses such as renovation and furnishing are also significant costs that are often overlooked at the initial stages of a purchase.
5. Not inspecting defects
It’s easy to get carried away and begin renovating or moving into a new property immediately upon vacant possession. It is, however, best to start with an inspection for defects upon receiving the keys.
For a comprehensive examination of the property, obtain the help of an inspection service provider.
When it comes to subsale properties, buyers need to be thorough in identifying significant flaws before committing to a purchase.
Since subsale properties can be sold on an as-is basis, buyers have to be aware of how much repair, restoration or renovation work is needed if the property is purchased.
Budgeting ahead helps you avoid any unwanted surprises that could quickly eat into your savings.
This article was written by Vigneswar Rajasurian of Property Advisor, Malaysia’s most comprehensive source of property data, property analytics and insights.