Planning and buying a house is an exciting task, because it will probably the biggest purchase that you ever make in your life. So survey and informative is very important when you are decided to purchase a house or shoplot.
Put more effort research on Internet can help to understand the steps involved in securing a housing loan and help to have better idea on the housing loan; save time and avoid uncertainty and anxiety problems.
Knowledge 1: What can I afford?
Before commit to purchase a property, you should first work out a budget to help you determine how much you can afford and the ceiling price on any property you may wish to buy. As recommended, your monthly commitments on paying the installments for your house, car and other payments should not exceed 1/ 3 of your gross monthly household income.
Knowledge 2: The source of funding can be any combination of Savings; Employee Provident Fund (EPF) account; Loan facility from a financial institution (Bank).
From savings, you should have sufficient personal savings to pay for the down payment and other related cost associated with buying a house; Withdraw from your EPF Account to make the initial down payment; Find a good and reliable financial institution, because when you take up a housing loan, you will be dealing with them on a regular basis for a period of time. The main consider factors are:
I. The housing loan interest rate.
II. How professional is the financial institution in dealing with customers?
III. Does it offer quality service in terms of efficiency and reliability?
IV. What are the available loan package and which package suits your need?
V. What are the charges involved? Like legal fees, related government fees and charges, disbursement fees and how often these charges are to be paid.
Knowledge 3: Accessing your loan repayment capacity.
If you have savings or fixed deposits, they can be used to support your loan application as financial institutions may take them into account in evaluating your eligibility. Different financial institutions have different criteria in calculating the repayment capacity. In the case of a floating rate loan, you should also note that your monthly repayment may increase substantially when interest rates go up.
Knowledge 4: Margin of financing.
The amount of financing provided by a financial institution depends on the market value or purchase price of the house, whichever is lower. The margin of financing could go as high as 95% of the value of the house and it is assessed on the factors such like:
I. Type of property.
II. Location of property.
III. Age of the borrower.
IV. Income of the borrower.
Knowledge 5: Common housing loan packages offered by Financial Institutions.
I. Term loan, a facility with regular pre-determined monthly installment. Installment is fixed for period of time such like 20 years; 30 years or 40 years. Installment payment consists of the loan amount plus the interest.
II. Overdraft facility, a facility with credit line granted based on pre-determined limit. No fixed monthly installment as the interest is calculated based on daily outstanding balance. It allows flexibility to repay the loan anytime and freedom to reuse the money. Interest charged is generally higher than the term loan.
III. Term loan and Overdraft combined, for example, 70% as term loan and 30% as overdraft loan. Regular loan installment on the term loan portion is required and flexibility on the repayment of overdraft portion.
Knowledge 6: Daily Interests or Monthly Interests.
Financial institutions may charge you interest either on daily interests or monthly interests depending the products offered. In the case of daily interests, the loan interest is calculated on a daily basis, while in the case of monthly interests, the loan interest is calculated once a month based on the previous month’s balance. Both type of loan, the principal sum will be reduced every time a loan installment is made.
Knowledge 7: Payment Scheme.
It allows lower installment payment at the beginning of the loan but this will gradually increase over time. This type of payment scheme will help the house buyers to reduce burden of loan repayment for the first few years and allow them to allocate more money for other purposes. Over time as earnings of the house buyers increase, their repayment capabilities will also increase thus balance their budget and expenses.
Knowledge 8: Prepayment Flexibility.
Different financial institutions may have different terms and conditions imposed on prepayment. Flexibility to make prepayments and paying interest on a daily interests basis, may help to save considerable interest charges. It is also possible to start repayment of the loan during the construction of the house, thus saving more interest charges.
Knowledge 9: Partial Prepayment of the Outstanding Loan.
Partial prepayments can be in any amount. However, some financial institutions may impose restrictions on the amount to be prepaid while others may impose a penalty. It is extremely effective in reducing the interest charges you would have to pay if prepayments are made during the early years.
Knowledge 10: Early Termination Penalty.
The penalty imposed can either be a flat rate or a number of months’ interest. This is because when a loan is granted for a certain term, the financial institution would expect the load to be repaid over the period agreed and has planned their cash flow on this basis. An early termination of the loan would therefore disrupt the financial institution’s cash flow planning. So some financial institutions do not charge a penalty if sufficient notice is given or the required minimum period to maintain the loan with the financial institution has passed.
Knowledge 11: Documentation.
The primary documentation involved in applying for a housing loan is the loan agreement. The other common legal documents that you may need to sign are the Deed of Assignments, Charge Documents and power of attorney.
Your property is charged to the financial institution, so whether you are buying a completed property or a property under construction, you should obtain an explanation from the attending lawyer on the major clauses of the agreement and the implications of each clause.
Knowledge 12: Valuation Report.
This documentation may be required if you purchase a fully completed property from a house owner. The financial institution will appoint a property valuer from its panel of valuers to appraise the property. The valuation fee for this service starts from a few hundred Ringgit Malaysia upwards, depending on the value of the property and you will be charged for this service.
Purchase a house or real estate property is not as easy as purchase a computer or car. It involves various parties, aspects and issues. Above just the very basic procedure and knowledge of purchase a house.
Great knowledges from some resources:
hartanah2u.com – Information and tips.
iproperty.com.my – Property and real estate analysis.
Loan Calculator – Try it out to calculate the loan amount you going to payoff in years.