Why is it called a downpayment when it is an upfront cost? While we may not have the answer for that, there are many costs involved in buying a property – with a downpayment being the most expensive and significant.
Because it is quite a hefty amount to pay there and then, your savings account must have enough money to proceed with the purchase. Otherwise, your dream house might slip through your fingers and into someone else’s!
Before you start saving those Ringgits, here are some common questions and things to know about a property downpayment.
What Is A Property Downpayment?
One of the first costs of owning a house, a property downpayment is a mandatory amount that solidifies the purchase of the property. Whether or not the house is from the primary or secondary property market, you must pay a downpayment to the developer or seller.
Cost Of Property Downpayment In Malaysia
A downpayment for a property is usually a minimum of 10% of the selling price, but may differ based on your loan affordability and if it is part of any homeownership programme.
How to calculate property downpayment?
Property selling price: RM600,000
Downpayment: RM60,000 (10% of the property’s selling price)
Mortgage loan: RM540,000 (subject to loan interest rates and tenure)
Need help figuring out how much of a loan you can apply for? Use the Mudah.my home loan calculator for some quick math and calculations!
As part of the mortgage policy by Bank Negara Malaysia (BNM), first-time home buyers enjoy a maximum home loan of 90%, followed by 80% and 70% for their second and third mortgages respectively. These rates apply for residential-titled properties only, so if you’re looking for a third home, you may get lucky with a loan for a commercial property instead.
Can I pay more for the downpayment?
If you have the means and money, paying more for your downpayment reduces how much you borrow from the bank to buy the house. For instance, instead of paying RM60,000, you pay RM100,000 – effectively decreasing your loan to RM500,000.
The lower your home loan, the more you’ll save in the long run, as the interest rate affects a smaller amount. Plus, your monthly repayment will be lower, and you might be able to clear the loan faster!
Difference Between Deposit And Downpayment
You might have heard of the term ‘earnest deposit’, but it’s not entirely the same as a downpayment. An earnest deposit is given to show your interest and intention to purchase the property, and is part of the downpayment, like a slice of cake from a whole cake.
The earnest deposit is a small percentage of the overall downpayment, and is mostly non-refundable. Altogether, a rough idea is 2% of an earnest deposit and 8% of the remainder, which will be paid when you sign the Sale and Purchase Agreement (SPA).
Based on the figures above, if a 10% downpayment is worth RM60,000, you will need to pay RM1,200 for a 2% earnest deposit. The remaining 8% (RM58,800) is to be paid upon signing the SPA.
Bear in mind that the earnest deposit amount is not a rule set in stone and may not be the same for all properties. Some earnest deposits can be 1%, while others are 5% and more.
Using EPF Savings For Downpayment
If the balance in your bank is insufficient, the good news is that you can withdraw from your EPF savings to finance your house. You may only withdraw money from your Akaun Sejahtera (a.k.a. Account 2) and for properties carrying a residential title.
The withdrawn money can be used to buy either a brand new developer unit, subsale property, or auction property, as long as you and the house fit the T&Cs set by the Employee Provident Fund.
Refunds For Downpayments
During the SPA signing, the lawyer will explain the agreement so you understand it through and through. One of these is a clause that states if the buyer is unable or unwilling to finalise the sale (meaning you don’t want to buy the property anymore), the downpayment is non-refundable and you will have to pay a fine.
On the other hand, if the developer or seller decides to terminate the SPA, they will also need to pay a cancellation fine. Either way, cancelling an SPA is costly and time-consuming, so ensure you’re well-prepared before signing, as there are no take-backs.
Do I Need To Pay To View A House?
The answer is: No. You do not need to pay anything, not even a booking or reservation fee, to view a house or unit you are interested in purchasing.
If you are requested to pay a viewing fee, stop communicating with the person immediately as it is a scam. Block the person and report them to the relevant authorities, like the police or the real estate agency they represent.
Tips To Get A Better Downpayment
If you’re buying a new property in Malaysia, developers may waive or lower the downpayment and other costs to make it easier and more accessible to buy. Besides that, check if there are any ongoing government campaigns or first-home initiatives by financial institutions with lowered downpayments to encourage property ownership.
To increase your savings for a downpayment, some lifestyle measures you can take include wise budgeting and increasing your salary or decreasing your commitments. The best way to save is to widen the gap between your income and cash flow, so plan wisely and realistically.