The Ultimate Property Guide: First Time Home Buyers

First Time Home Buyer

The biggest goal I think I can achieve in adulthood could possibly be becoming a first time home buyer, marking the point in my life where I can finally say, I am financially stable enough.

But what I didn’t know was how to actually go through the process, expecting it to be like online shopping on Lazada. Boy, was I wrong and I know I’m not the only one. Hence, this one goes out to all my millennials out there scratching their heads over the process of buying their first home.

Let’s dive straight in, shall we?

Step One: Figuring out if you’re completely ready

To purchase your own home is to be tied down to one particular location for a long time hence, if you’re a person that has to move around a lot, being tied down to one property in one location may not be a good idea for you.

To be ready is also to be prepared to expend a third of your salary a month on monthly installments. This is also where you should also be prepared for a credit check with a bank to ensure your eligibility for a mortgage loan, assuming you don’t already have a lot of other financial commitments to juggle.

And let’s not forget the finances that will go into paying the down payment for the property as well as legal fees for the documentation required.

With all of that taken into consideration, this is where you ask yourself, are you really ready?

If yes, please read on.

Step Two: Finding a suitable property

Here’s where we can cut to the chase. At this stage, you know what you want (or can afford) and where you want it (or where you can afford it to be). The location of the property may very well be the most important aspect of it as the location can make or break it’s market value (property values can change according to the condition of the property as well as its surroundings.)

Hence, it’s always smarter to find a property that is closer to your workplace, while surrounded by the amenities that you’ll need on a routinely basis such as grocery stores, accessibility to highways, schools (if you’re into children),petrol stations and so forth.

Other aspects to look at would be the sizing of the property as well as number of bedrooms and bathrooms. Once you’ve picked out and viewed a property of your liking, you’re going to have to proceed with step 3.   

Step Three: Eligibility for Mortgage Loan

Having your credit checked earlier on is ridiculously important as you’ll then know where you stand when it comes to eligibility for mortgage loans. It’s also important to ensure you pick the mortgage loan from a bank with the lowest interest rates.

Picking the lowest interest rate is important as during the first few years through your mortgage loan, the majority of your monthly repayments will be utilized to repay the interest rate and as time passes, a larger portion of the repayments will then go into paying off the principal.

For those who are like me and have no clue what I’m talking about, the principal is the amount that you originally agreed to pay bank whereas the interest is the cost of borrowing the principal.

Step Four: Negotiation and Making an Offer

This is where you should research a little on the valuation of properties in the same vicinity in which you’re looking to purchase as if your valuation turns out lower than the negotiated price, this is when you can offer the property owner a lower pricing that is within the amount agreed upon by the bank.

The importance here is when the property price is higher than the amount that you’re loaning, you’re going to have to fork out the remaining amount to top up the purchase price, which might put a huge dent on your bank account as you’ll also need to allocate a huge sum for stamp duty and legal fees.

If the property owner is desperate to sell, he or she may just accept it but if the owner chooses to counter offer an amount slightly higher, you will then have to come up with your maximum offer, based on the budget that you are working around and the owner will either have to take it or leave it.

Step Five: Legal Processes, Documentation and Payments

Once all the verbal agreements are made, having a lawyer overlook the drafting of the offer letter and Sales and Purchase Agreement.

When hiring a lawyer, it is essential to look for someone who would have your best interests in mind such as a family member or a friend. Some developers do offer complimentary legal services to those who purchase their properties, though you should always keep an eye out as these lawyers will be working with the developers best interest at heart.

Once you’ve gotten your offer letter ready, have it signed and make the first 2% of the down payment, which goes to the agent involved for being the neutral party. The total amount of the down payment is usually 10% of the property price. The remaining 8% should be paid off once you’ve finalized your bank loan and signed the Sales and Purchase Agreement.

But that’s not the last of your payments. Here is a list of other miscellaneous fees you’ll have to deal with:

  1. Stamp duty for transfer of ownership title (also known as memorandum of transfer or MOT) = 1% for the first RM100,000; 2% on the next RM400,000, and 3% on the subsequent amount.
  2. Sale & Purchase Agreement (“SPA”) legal fees = 1% for first RM150,000 and 0.7% of remaining value of property within RM1 million
  3. Stamping for SPA = Less than a hundred Ringgit
  4. SPA legal disbursement fee = A few hundred Ringgit
  5. Loan facility agreement legal fees = 1% for first RM150,000 and 0.7% of remaining value of loan within RM1 million
  6. Stamp duty for loan = 0.5% of loan amount
  7. Loan Facility Agreement legal disbursement fee = A few hundred Ringgit
  8. Fee for transfer of ownership title = A few hundred Ringgit
  9. Mortgage Reducing Term Insurance (ie. think of it as a life insurance for your home loan) = RM1,000 or more (some banks waive this amount)
  10. Government Tax on Agreements = 6% of total lawyer fees
  11. Bank processing fee for loan = RM200

*Note: The percentages are based on recommended numbers and industry averages. Actual figures may differ.

Step Six: Handover

Once both lawyers have agreed upon a completion or closing date to be stated on the Sales and Purchase Agreement, where all payments need to completed, the property owner will then have to handover the keys to you (within the number of days specified on the Sales and Purchase Agreement).

Before receiving the keys from the previous owner, ensure to collect the statements and receipts for all the utilities (electricity bills, water bills, sewage bills, etc) showing all the outstanding amounts paid up until the handover date. Do not accept the keys until the seller completes his personal payments in which you can then apply late delivery charges called Liquidated Ascertained Damages.

It’s understandable that this entire process can come off rather complicating, but fear not for along with our First Time Home Buyer series, will be guides to each and every individual step mentioned above to further assist you throughout your journey to buying your first home!

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Coming up next on the Ultimate Property Guide: First Time Home Buyers Series, we’ll be delving a little deeper into Mortgage Loan Application. Stay tuned!


Written by, Renushara Marudawanan

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