Buying your first home is one of the most daunting life experiences. From figuring out the right house to dealing with the real estate agent, there are many steps that make up the home-buying process. First-time home buyers can read this article for a list of things to know when buying a house for the first time.
Buying a property is a major financial investment. This article is the second chapter of a special three-part mini-series within #PropertyHacks. Follow these tips and tricks to make the most out of your investment. Stay tuned for more content!
Buying a first home is a big milestone for just anyone. It’s an enormous commitment and chances are, it will be the largest purchase you will ever make in life. So it’s understandable if the whole process can be a daunting one. But fear not, with a little bit of guidance, a lot of research and self-belief, you will get through it.
Earlier this month, we deciphered some of the most important things you need to know before buying your first property. In this episode, we will dive deep into the steps you need to take throughout the buying process itself.
Step 1: Don't look for the perfect house, but look for the right home
Perfect is in the eyes of the beholder, so instead of looking for the perfect house, it would be more fitting to look for the right home.
We purposely distinguished home and house; the former is your haven that reflects your very preference, personality, lifestyle and some could even argue values. A house, on other hand, is just a shelter made out of concrete.
When your physiological and safety needs are being met, you could proceed to fulfil other needs such as love, esteem and self-actualisation. (Image source: Thoughtco.com)
All humans, according to psychologist Abraham Maslow, need proper shelter (within the safety category), which comes after the physiological needs as part of the Maslow’s hierarchy of needs. Having a safe and secure home is a basic survival pillar. The right house will feel like home and allow you to go back to a sanctuary after a long and stressful day at work.
To make your house a sanctuary, however, you will need to find a place that fits in perfectly for you. When looking for a property, we recommend these following factors to help you get closer to your dream home.
For some, this could be the decisive factor; for others who have the luxury of choice, may have a more lenient price range. So it fares differently for different people.
But before you dive deep into other factors or hit the property market right away, you should set a certain budget to help you narrow down your choices. This move will also help you save time as you get to drop any options that are out of your price range.
Type of property
Double-storey terrace? Apartment with a swimming pool? Townhouse near the city? If we were to list down all possible options, there will be endless options for you to choose from. Avoid this sticky dilemma by setting up a budget.
For example, if you are looking for a double-storey terrace, you could get a relatively cheap one, between RM400,000 to RM550,000 in the outskirts of Selangor.
If you want to avoid the dreadful upfront cost or down payment, you could buy a property that is still under construction (albeit it will only be completed after a few years), or if you are feeling optimistic and don't mind dedicating more time (and money) towards the property, you could opt for a fixer-upper that doesn't require a complete overhaul.
Look for homes that have not reached its full potential or were once golden gems but have reached their peak. Different people have different needs and priorities so it depends on what yours are as well.
And truth be told, in exchange for affordability, we would be willing to live at a place that is "incomplete" or slightly "run down". Perhaps the house meets your other bigger needs that are much more difficult to compromise, such as location and size, so don't let the physical imperfections completely blind you.
There's also a wide belief that first-time homebuyers shouldn't worry too much about finding the "perfect" house, because the goal is to get up the property ladder. Whether or not you agree with this belief is up to you, but it's worth mulling over.
Where your house will be located is perhaps the second most important factor when buying a house. Why? A great location will remain profitable no matter how the real estate market performs, but a bad location could make it harder for you to rent it out or even live in the future.
For instance, it will be more costly to commute to work if your office is located two hours away from where the house is located. Pro tip we found online: you can make an ugly house attractive but you can’t make a bad location great.
This point is particularly important for those planning to raise a family. Inspect the neighbourhood to see if it's family-friendly and safe. One good tip is to check out the neighbourhood at different times of the day, be it day or night.
If you are a green enthusiast, maybe you prefer to live in an environmentally friendly neighbourhood, and if you walk a lot, maybe you want to settle down in a neighbourhood that has great walkability and many facilities for pedestrians.
If you want to go the extra mile, squeeze in a few chats or meetings with some of the locals to get a sense of the neighbourhood to see if it suits your preferences and taste.
This may or may not be important to you depending on your cost of living, lifestyle and preferences. Those living on their own may prefer commuting via public transportation than families who need to factor in the modes of transport for their spouses and children as well. Some other families, however, choose to take public transportation to cut down on the cost.
For others, the length of time it takes to and fro for work could be the ultimate factor in their decision to close a deal, especially those living in the city. These types of residential areas may be nearer to a network of public transportation. We will have to admit, there are a lot of perks to taking public transportation. For one, you can save time (unfortunately Malaysia is synonymous with heavy traffic), money, stress and even the earth!
Schools - If you have family and kids, it would be more ideal for your kids to attend a school that is closer to home. Scout for residential areas or neighbourhoods that include schools and educational centres.
Of course, that doesn't mean you should compensate for quality for the sake of convenience. After all, you want the best for your children. However, you also need to factor in the budget you are working with as not all public schools are located in every neighbourhood.
Expand your search
Thanks to the Internet, searching for properties on sale is now much easier than ever before. Online listings like iProperty, PropertyGuru, Mudah.com make it easier for consumers to search, browse and narrow down housing options by type, price range with a certain area.
Secure a reliable and trustworthy agent
Once you have figured out a few ideal options, get hold of a trusted agent to provide more insights on the property and location, as well as to help you secure the house. With so many property choices to look for - Malaysia is known for its severe glut in the property market - it would be much easier to get a lead on available options in the market through a reliable real estate agent. Ask friends, family, and business contacts, too. This is a great segway into the second point.
A good real estate agent won’t pressure you into buying a property because they are in desperate need to hit their monthly quota.
Step 2: Get an agent to help you make an offer and negotiate
In Malaysia, like in most other countries, a real estate agent will be the middleman between you and the property owner (if it's a sub sale) and the property developer. Of course, there are other characters involved; the banker and the lawyer among others, but the agent is the main character in the process, and the type of agent you work with will set the tone of your deal.
Your real estate agent will help you decide how much money you want to offer for the house or how much money the both of you think it’s worth negotiating for. Your agent could also help you secure other conditions with the property, i.e. free furniture.
Though it's not an apple to apple comparison, a good real estate agent is similar to a good car salesperson; they can help you save time and money while a bad one will leave you frustrated. We recently did a piece on spotting a good car agent from a bad one for reference.
For sub sale properties, the agent will be responsible for presenting your offer to the seller's agent and negotiating that offer. After that, you can expect the seller to accept your offer or issue a counteroffer. Then it's a matter of going back and forth until a deal can be reached or you can also walk away if it's not worth your time. You will not be able to provide an offer or negotiate a price for a property under construction.
If you find all the documentation perplexing and confusing, it’s perhaps a good idea to jot it all down in an excel sheet.
Step 3: Submit all your documents and figure out your financing options
Successfully negotiated a deal? Congratulations!
But hold up, that's not the end of the process. After you have agreed to a certain price with the owner or have successfully filled in your application for a property under construction, the next tough step is to complete all the necessary documentation, and for some, this can be the most complicated process due to the sheer amount of time and effort it takes.
Since this section is quite lengthy by nature, we will provide a basic run-through of some of the documents that you will eventually sign.
A) Letter Of Offer/ Intent To Purchase
This document states that the buyer has intentions to purchase the property. It is written up by the company of the appointed realtor. This document ensures you, the buyer, gets the property at the agreed price and the seller can offload it at the agreed price, too.
What to look for:
- Look out of the selling price of the property with any included fixtures and furnishings.
- Double-check the Sales And Purchase Agreement (SPA) date signage.
- The document will include conditions of the offer and purchase to protect both the buyer and the seller. An obvious example is the return of the earnest deposit if the sale doesn't go through. An earnest deposit or the notoriously known down payment is made by the buyer in a show of good faith to secure the property.
B) Sales And Purchase Agreement (SPA)
This is a comprehensive legal document that seals the deal between the seller and buyer. It also contains agreed-upon terms and conditions of the property transaction between the buyer and seller.
What to look for:
- Typically, an agent will recommend a law firm to write up and manage the signing of the SPA for its clients. Lawyers are necessary because they have the expertise and knowledge to iron out the details in the SPA.
- The document doubles as a safety net to protect both parties if anything goes wrong.
- The buyer is responsible for the stamp duty on the SPA. If you didn’t already know, stamp duty is a tax imposed on documents in the sale or transfer of a property.
C) Memorandum Of Transfer (MOT)
As its name is called, this document officially cements the transfer of ownership of the property from the developer (or from the proprietor for subsale properties) to its new owner. This legal document signals that the transfer of ownership has legally been completed.
What to look for:
- Similar to the SPA, there is a stamp duty charge.
- However, buyers will receive a 100% exemption from having to pay the stamp duty on the MOT for spousal transfers. Similarly, a 50% exemption will be given when a parent transfers the property to the child or vice versa.
- Some great news, under Budget 2021,first-home buyers whose selected home is below RM500,000, are eligible for a full stamp duty exemption for memorandum of transfer documents (MOT) and loan agreements for purchase agreements. However, the SPA must be executed and signed within the stipulated period, starting from 1 January 2021 to 31 December 2025.
D) The Facility Agreement
Commonly known as a loan agreement, it details the terms and conditions of the housing loan accepted by the buyer.
What to look for:
- Drawn up by the bank's lawyer to protect the bank’s interest.
- The buyer or borrower has to pay the legal fees for the facility agreement. (Important to factor this into the total cost as well)
When it comes to financing the house, there are several payments that the buyer will need to be aware of.
A) Upfront cost or down payment
If you have reached this point, we are sure you have secured enough money for the down payment of a house in the secondary market (sub sale unit). Properties under construction don’t usually require a down payment.
In Malaysia, the typical minimum amount of down payment is 10% of the total purchase price, and the balance 90% (margin of financing) will be secured with a bank loan - for a buyer’s first two residential properties.
So let’s say you want to buy an RM500,000 condo in Puchong, you will need to fork out at least RM50,000 for the upfront cost.
B) Hidden fees
If you are a first-time buyer then it may come to your surprise that there are some “hidden fees” that you will need to be responsible for beyond just the deposit and the loan. Ugh!
These miscellaneous fees and charges can seriously hike up your total cost, so it’s important to know them beforehand so that you can estimate whether you have the financial capacity to buy a house.
A house valued at RM500,000 with a typical 90% margin of financing comes with about RM20,000 in fees and charges - on top of the down payment. Figure out if that amount is affordable for you before saying yes.
Here is the full list of hidden fees
Stamp duty for transfer of ownership of title or MOT (as explained above)
- 1% for the first RM100,000; 2% for the next RM400,000 and 3% on the subsequent amount.
Sale & Purchase Agreement (SPA) legal fees
- 1% for first RM150,000 and 0.7% of the remaining value of property within RM1 million.
Stamping for SPA
- Less than RM100
SPA legal disbursement fee
- A few hundred Ringgit
Loan Facility Agreement legal fee
- 1% for first RM150,000 and 0.7% of the remaining value of loan within RM1 million.
Stamp duty for loan
- 0.5% of the loan amount
Loan Facility Agreement legal disbursement fee
- A few hundred Ringgit
Fee for Transfer of Ownership title
- A few hundred Ringgit
Mortgage Reducing Term Insurance
- RM1000 or more, depending on the bank
Government Tax on Agreements
- 6% of lawyer fees
Bank processing fee for the loan
C) Monthly instalment
Most borrowers will take up a home loan as it is quite impossible to buy a house in cash.
Check out this cool home loan calculator we found on AKPK if you need to calculate how much you will need to pay in a month to cover the cost of your home and how long you need to finance it. By the way, most banks will typically require borrowers to repay their home loans in full before they turn 65 to 70 years old.
Beyond the loan, you should also factor in the other costs. These figures include down payment, regular maintenance expenses, homeowners' insurance, property taxes and unexpected costs like emergencies.
In order to stay afloat financially, it is recommended that your overall total of monthly instalments on all your outstanding loans, including your home loan, does not exceed 70% of your net income, which is the income after deductibles such as income tax and EPF.
When working with your agent, get them to share a few interest rate options for the hire purchase (house loan) from a few different banks so you have options to choose from.
Just like how you will take a car for a test drive before buying it, you should also inspect your house before buying it.
Step 4: inspect the home - never accept an offer without checking the unit beforehand
Doesn’t matter if your home is brand new or is a sub sale, a big rookie mistake you will want to avoid is not inspecting the house before closing the deal, no matter how flawless the house may appear.
In fact, we recommend appointing a trained professional to inspect for the quality, safety and overall condition of the property.
The last thing you want is to get stuck with an unsafe or damaged property, despite already forking out so much money for the down payment. Not to mention the headache of having to figure out all the unexpected repairs.
A home inspection is like a medical check-up or a financial check-up of your potential partner before you decide to wed them - it helps you see whether they are medically or financially fit enough to be with you before your decide to tie the knot; we know it sounds like an extreme example, but it makes sense.
If the home inspection shows serious defects that were not disclosed earlier, then it gives time for you to back out of the deal and rescind your offer (and get your deposit back). Or you could just renegotiate to have the seller make additional repairs or discount the selling price.
Step 5: Closed the deal? Congratulations! Nope? Time to move on
If all goes well: your documents were accepted and processed, loan application was approved and the down payment has been made, then congratulations, you are a few steps closer from getting the keys to your new house!
P.S.: But before you get all excited, just bear in mind that the entire process of purchasing a house can take a few months to officialise and complete.
Now that you are getting closer to moving to your new house - or let’s say you already have, then what’s installed next? Surprise! Homeownership costs don’t end at the purchase stage. Remember that you also need to factor in the monthly mortgage payments and the maintenance as well.
Now that you are an official - in a way - homeowner, what do you do? Well, stay tuned for our third and final episode in our mini-series of buying your first home in Malaysia as part of the #PropertyHacks editorial series, to find out!