First time buying a house? Want to apply for a home loan but not sure what you should look into? We know that it requires an ample amount of research and time to make sure you’re choosing the best home loan for your property.
But, where do we start? Have we saved up enough to own our dream home? What do we do? Surely you must have heard of home loans? This right here is the key to helping you get a step closer to getting you your house.
Here is SPEEDHOME’s basic home loan guide for new homeowners, that includes;
- What Is A Home Loan?
- How To Apply For A Home Loan?
- Which Housing Loan Is Best In Malaysia?
- What Is The Maximum Interest Rate For Home Loan?
- How Do I Calculate My Home Loan Eligibility?
- What is The Minimum Salary To Get Home Loans?
Hopefully you will understand the basics of home loans in Malaysia after reading this guide.
What Is A Home Loan?
Home loan is in layman’s terms; a loan or mortgage borrowed by a potential house owner, usually from financial institutes such as banks or companies to aid you in purchasing a property.
This loan usually comes with an interest rate called Easy Monthly Instalments (EMI) and is to be paid back over a certain amount of time (usually varies between 10 to 30 years, per agreement).
Also in Malaysia, the property you purchased will be under the institution/company’s name until you fully paid the loan then the ownership will be transferred to you.
How To Apply For A Home Loan?
Now that you have a certain understanding of what a home loan is, you now might be interested in how do you go about applying for a home loan?
The first step is to settle all the necessary documentation. Below are the necessary documents for a home loan application;
Booking Fee Receipt
(This is only necessary if you are purchasing a brand new property from a developer and can only be obtained after paying a booking fee to the developer).
This receipt is only if you are purchasing a sub-sale property and can only be obtained from the owner’s lawyer.
Letter Of Undertaking
(Only for those purchasing sub-sale properties. It will be drawn up by the owner’s lawyer, and the terms include:
- Completion of the property
- Property is issued with a Certificate of Compliance and Completion (CCC), a certificate which provides final sign-off on the construction of a building.
- Consent of Transfer, which is an official statement stating a transfer of property ownership, if the property requires it.
- Execution of the Memorandum of Transfer (MOT), another type of legal document that declares for an official transfer of property ownership, for properties with title.
- Money disbursed by the institution for the mortgage loan to be refunded if for any reason the property cannot be transferred to the purchaser.)
(This document is necessary to allow the institution to do the necessary background check on you. This document is to be signed in front of the Commissioner for Oath or the Notary Public.)
- Booking Form
- IC or Passport
- Salary Slip
- 12 Months Of Bank Account Statements
- Income Tax Receipt
- Six Months’ EPF Statements
After submitting these documents, the institution will then process your application for a duration between two days to a week, before they will inform you if they have approved of it.
The institution will also cross check your credentials with;
- Central Credit Reference Information System (CCRIS)
- Income Tax Department (LHDN)
- Employees Provident Fund (EPF)
When your credentials have been proven only then the institution will go forward with approving your loan application.
Which Housing Loan Is Best In Malaysia?
So which home loan is the best choice in Malaysia? The answer would be the one that suits your needs.
No joke, Malaysia has about FOUR different types of housing loan to offer and they all come with different types of benefits, these loans are;
- Basic Term Loan
A Basic Term Loan, as its name already implies it gives you a basic package that is not as lenient as the other loans, where you cannot reduce the loan period.
But it is the most popular option of the bunch as it already has a set amount of monthly payment. Therefore, for however long your loan period is agreed upon, you will not have to wonder about what is the amount you have to pay for each month as it is already fixed.
It also helps you figure out whether you can afford to pay the amount in the long run.
- Semi-Flexi Loan
A Semi-Flexi Loan is the most commonly offered home loan in Malaysia as it is kinder to those that prefer to have the option to reduce their loan period.
Meaning you can choose to pay a bigger amount earlier thus reducing the loan period and cutting the interest rate as well. It is also an option for saving cost in the long run.
However, depending on the nature of your loan agreement, if you choose to pay more earlier you might have to make a request to do so from your bank. There may also be extra charges for it such as a processing fee, penalty fee or even an approval process to go through.
Also depending on the financial institution or company, it may have a higher interest rate compared to the Basic Term Loan. It is best to compare prices if this is the home loan you are keen on.
- Full-Flexi Loan
A Full-Flexi Loan has similar characteristics to a Semi-Flexi Loan but you can choose to be able to withdraw your advance payments with no extra charges and no extra processes. Also if you were to pay more than the set monthly amount, the interest rate will be reduced automatically.
However with a Full-Flexi Loan, it is usually subjected to a fixed monthly fee of around RM5 to RM10. It is also not available in most financial institutions in Malaysia hence options are limited to make comparisons for the best interest rate. Also the interest rates for full-flexi loans can be higher than the ones offered by term loans.
- Islamic Home Loan
Islamic Home Loan is the only loan that operates on interest-free transactions as it is based on the Murabahah concept under Sharia law, where there is a ban on charging interest (riba). It does not only not charge interest for the loan but it also does not charge any compounding interest for late payments.
It works solely on a Buy and Sell or Joint Partnership agreement where the bank buys the house and leases it back to you on installments over a period of time at a higher resale price than the house’s original market value.
Aside from the types of loan, you should also look into the hidden cost of buying a house if you want to optimise your spending and be prepared for any charges that may incur along the way.
What Is The Maximum Interest Rate For Home Loan?
Interest rate varies from one institution to another and is also wholly dependent on the type of home loan you are interested to take up. But you also need to know that there are two types of interest rates which are;
- Fixed Interest Rate
It is an unchangeable set amount throughout your loan period. Go for this option if you worry about unforeseeable changes in interest rates.
- Variable Interest Rate
Variable Interest Rate is wholly-based on Base Lending Rate (BLR), which is regulated by Bank Negara Malaysia (BNM). Variable interest loans usually offer lower rates compared to fixed interest loans.
To aid you in comparing the interest rate that institutions offer, you can use this home loan calculator.
How Do I Calculate My Home Loan Eligibility?
Home loan eligibility is a set of criteria which an institution will assess the creditworthiness of a customer to approve and repay a particular loan amount.
So how do I calculate my home loan eligibility? It takes into account;
- Your monthly net income after cutting out taxes, EPF/SOCSO
- Your monthly commitments (credit card bills, student loan repayment and other miscellaneous commitments.)
- Loan Period (10-30 years)
- Annual Rate Interest
Want to know how much you have to pay on a monthly basis? You can use our mortgage calculator to know your monthly commitments.
What Is The Minimum Salary To Get Home Loans?
Finally, you might ask what is the minimum salary you need to get home loans? Well, it does not work that way.
It is vital to know that financial institutions and companies will likely loan you up to 30% of your gross income annually.
So it is wholly depending on you to set a realistic goal on the type of house you are looking to purchase. It would not make much sense if you earn a low wage and are looking to purchase a bungalow now, would it?
Setting a realistic goal is to also make sure you can afford to pay your home loan in the long run. It would not be good on you if you borrowed more than what you can pay for which could lead to bankruptcy if you fail to pay your loans.
To understand more about salary and home loan eligibility read
After reading up on all that, hopefully you have more understanding on home loans. Read our guide for new home-buyer to find out what you need to prepare for your first big asset.