It is time for you to step into adulthood. Reaching a new milestone in your life where you are planning to have a family and have to buy a house in Malaysia on your own? But buying a house in the in Malaysia is too expensive and you cannot afford it yet because it is way out of your budget, especially for millennials. At the same time, you are swarmed with the negative comments by people around you telling you various horror stories that you can ever imagine, e.g.: the debts that you got yourself into after getting your first property in Malaysia, the tedious procedure of buying a house in Malaysia and the commitments you get yourself into when you start buying a property in Malaysia and you are left with not enough money for yourself after paying for mortgage loan.

All these horror stories however, did not stop millennials nowadays from buying their very first property in Malaysia. Millennials should ask themselves a few questions before making a major decision of buying their very first own property in Malaysia.

1. How Much Can I Afford?
It is advisable to have an expenditure breakfown before deciding on buying a property. It is recommended by most financial experts that you must not allocate more than one-third of your income to pay for the housing loan. If you think you can spend an amount of RM500,000 in buying a condominium in Damansara North, having enough money to pay for your home loan and it would not cause any financial problem to you, then you can proceed to the next step.

After your expenditure breakdown, it is time to be realistic and ask yourself this question: How much can I afford to buy a property? Have a look at your income and set a budget. Know how much you can afford monthly when it comes to paying bank loan, not forgetting the upfront payment that you need to deal with when you purchase a property. Most financial institutions will look at your debt service ratio (DSR) before they decide on the loan amount that you get. The DSR is an indication of how much you can afford for your loan that you are applying after paying for personal loan, auto loan or home loans. In order to be qualified for a loan, your DSR should not exceed 60%, inclusive of repayments of loan that you are applying for.

Let us imagine a scenario:

Monthly income
Car loan installment per month
Personal loan installment per month
Property price
Loan amount after 10% down payment
Loan tenure
30 years
Interest rate per annum
Home loan installment per month

Based on the table above, we will be able to calculate the DSR.

Total commitment per month = RM1,100 / RM2,240
                                                   = RM3,340

Debt commitment per month = (RM3,340 / RM4,500) x 100%
                                                   = 74%

That being said, the maximum loan amount that you are able to secure will be RM 325,000 and you are only able to afford properties that costs below RM360,000.

2. The Total Upfront Payment
Normally, down payment would be a 10% of your property’s price, but still, depending mainly on how much the bank is willing to loan you. That being said, if the bank if proving a loan of 90%, you will need to pay 10% of the down payment. If the bank is providing lesser loan, say 80% loan, you will then need to pay a 20% downpayment. Not forgeting other upfront payments that you will need to bear after paying for the down payment.

It is said that approximately 75% of people who plan to buy a property have not even saved enough amount for the downpayment itself. Whereas 68% of the millennials that bought their first property in the past two years have overspent their budget. It is said that most of them have overspent on legal fees, renovation costs, buying furniture and other miscellaneous fees such as processing fees, legal fees, stamp duty and home insurance that are unavoidable. That being said, there is only approximately 15% of them have a precise budget in their minds when it comes to budgeting. 

3. How Can I Increase My Eligibility?
The easiest and most straightforward answer to this question is to increase your monthly income. Let us say your salary has been raised from RM4,500 to RM5,500, your DSR will then increase to a 74%, making it much possible to obtain a RM450,000 loan.

However, millennials would think getting a raise is not easy therefore being aligible to afford a house is hard. That is not always the case. Millennials could plan out their finances, set a budget and stick to it in order to achieve their goals. Having a budget and sticking to it is important as it prevents you from overspending on unnessecary things. It also prevents you from falling into a financial debt. Before you buy your first home, you should definitely reduce your credit facilities so your DSR would look good when you apply for a home loan, increasing your chances of securing one. 

In conclusion, millennials nowadays should do their research and start planning ahead before buying a property. Most importantly, they should definitely set a practical budget and stick to it to prevent getting themselves into a financial debt in the future.