In an ideal world, buying a house means paying the seller and then bam. You’ve got a house. Unfortunately, it’s not that simple – there are additional fees, charges and taxes in play that are not always made clear. Consequently, consumers may not be aware of them.
If you’re ready to purchase a new home but researching all these different costs makes you feel as though you’re cramming for an impossible exam, worry not! We’ve got you covered. NuProp has prepared a financial cheat sheet for you, complete with all the different types of charges you can expect to pay throughout the process of purchasing your new property.
So what if you wanted to buy a property with an asking price of RM600,000? How much are you really going to have to pay, and to whom? Let’s find out.
This is probably the most straightforward cost you’ll encounter, and how much you cough up now will depend upon the price of the property itself. Most sellers will require a down payment of 10% of the property price. In the case of new property, or property that is still in development, some developers may require 0% down payment as the buyer already has to pay a booking fee (those can range anywhere from RM1,000 to RM100,000).
For the sake of this article, we’ll go with the former option. That means:
Home Loan Interest
Real estate is crazy expensive. We all know this. Maybe that’s why owning your own piece of land comes with such a strong feeling of ‘I made it! I’m doing this adult thing properly!’ The majority of the human population, though, can’t do that without a little (or a lot of) financial help. That’s where the banks come in. First timers in the game will usually get a loan of up to 90% of the property price so long as it doesn’t exceed one third of their monthly household income.
In this example, your household income is RM8,500 so congratulations! After going through your financials and carrying out a valuation on the desired property, the bank has decided to give you a RM540,000 loan. Now you’re going to want to make sure that you’ve chosen the bank with the best (a.k.a. lowest) interest rate. That’s what will really determine, in the long run, how smart you are with your money.
Also keep in mind that interest rates increase all the time. In 2013 the average was 4.2%-4.4%. Now, in 2016, the average is 4.45%-4.7%. It might not seem like much but you would weep if you knew just how much more expensive a 4.5% rate is compared to a 4.45% rate over the usual 30-year tenure.
You know what? Let us show you.
See that? That is a difference of RM5,767.20. Money that could’ve been yours, if you’d only known the weight of a mere 0.05%. Every bank has a housing loan plan with differing interest rates so be sure to do your research to find out which one suits you most. You may even want to look into Islamic financing (hint: you don’t have to be a Muslim to do so).
One more thing – you also have to pay the cost of the valuation report which determines how much the bank thinks your desired property is worth. Shown below are the rates which depend on the price of the property being valued.
According to those figures, then, the cost of the valuation for your RM600K house is as follows:
So if you were clever and took the 4.45% loan…
Home Loan Insurance
When you take out a home loan or mortgage, you’ll probably also want to have it insured – especially if you’re co-buying the mortgage with someone else or you have dependents (people who rely solely on your ability to generate income). Malaysian banks will often offer an insurance policy along with the original loan.
The two most common types of insurance are the Mortgage Reducing Term Assurance (MRTA) and the Mortgage Level Term Assurance (MLTA). Both serve slightly different purposes, for people with different priorities, and as such the prices vary greatly between banks as well as between plans.
On the other hand, if you don’t have any dependents or the extra money to spare to pay the bank’s premium for the insurance, you might not want this insurance at all. For this example, we’ll use the price of a basic MRTA. You can pay a one-time premium (this can range from RM11,000 to RM15,000) but if you’re like the rest of us, and don’t have that kind of money lying around, most banks will simply add a portion of that amount (RM500-RM1000) to your monthly mortgage instalments. So that’s what we’ll do here.
There are stamp duties imposed for multiple legal transactions during the purchasing process; most notably, the Sales & Purchase Agreement (SPA), the memorandum of transfer (MOT, which is the transfer of the property’s ownership) and the loan agreement (which is between the buyer and the bank).
This means that the total cost for your hypothetical RM600K property amounts to RM25,700. An additional fee for transfer of ownership title is commonly a few hundred Ringgit (we’ll say RM300 here).
The drafting of the SPA and loan agreement must be carried out only by certified lawyers, so make sure you find a good, reputable one. The legal fees are law-regulated to depend on the purchase price of your desired property. The rates are as follows:
Along with the above charges, there will also be various government taxes, processing fees and disbursement fees. Disbursement fees cover the cost of all the miscellaneous tasks that need to be undertaken throughout the purchasing process such as carrying out a title search on the property (as well as other searches, i.e. land, bankruptcy), mortgage and deed registration, tax certification completion and various administrative expenses that include postage, photocopying, faxing, etc.
Ways to Save?
Let’s just take a moment for that to sink in. And of course, that price only includes one month’s home loan installment. On the bright side, you have a house! No, really, you should be happy. You’ve turned your dream of owning your own property into a reality. Now, just because you’ll be spending all this money doesn’t mean you shouldn’t try to save when you can.
A few tips:
– First-time home buyers purchasing a property priced less than RM500K are entitled to a 50% discount on stamp duty by the government.
– If the Valuation report done by the bank values your desired property at less than its asking price, use that to your advantage! Negotiate a lower price with the seller — you have that right.
– Try to get the lowest possible interest rate on your loan. You’ve already seen how much of a difference it can make in the long-run.
– To make sure that you don’t pay for any more than you legally have to, ask for statements of proof from the seller that show that they have paid any and all outstanding bills prior to your vacant ownership.
– For new or upcoming properties, developers will often offer discounts, early bird prices and rebates. Take advantage of those if you can!
– Some developers will also offer free legal services but do be cautious, as the lawyers hired by the developers will act in their best interests — not yours.
There we have it. Keep in mind that all of the prices illustrated in this cheat sheet are estimations for reference and should not be taken in the place of a professional’s advice. We hope you now have a better understanding about all the fees included when buying a home. Always double check with your bank personnel to clarify the exact costs specific to your circumstances.
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