Buying a house and a car are important for every working adult's life as a house is needed for shelter and raise our families and a car for the easy commute to work and move around from one place to another. The burning question is...

…Can you afford your first house?

The answer is very subjective and dependent on many factors like the availability of a down-payment and number of dependents.

WHAT'S REALISTIC?

Millennials (those who are born in the year 1980s to 2000s) are considered as the "homeless generation” because stagnant wages and skyrocketing property prices render it almost impossible for them to afford a down payment much less qualify for a home loan.

Looking at the soaring property prices in Malaysia, many young people can't help but complain. Past generations were luckier, as houses and land were more affordable to buy. For the younger generation today, buying a house doesn't seem as easy as it once was.

Banks look at your Debt Service Ratio (DSR) and generally would not approve a loan if the monthly instalment exceeds 60% of the borrowers' monthly income and this is assuming the best-case scenario where the individual can fork out RM25,000 up front and possesses a good credit history. How many 20-somethings do you know would fit these criterions without receiving financial aid from their families?

Scenario 1 John is a 27-year-old, working in an executive position. His take home salary is RM2,600 and he is still living comfortably with his parents.

Despite having a healthy social life, John manages to live a life reasonably debt free aside from his RM400 a month car loan. After factoring in his expenses on food, transportation, entertainment, and mobile phone bills, he can set aside RM315 as savings. John lives a relatively comfortable life but he also realises that he cannot stay with his parents forever and would one day need to buy a property of his own. However, given the rising cost of property in urban Malaysia, owning a house seems more like an impossible dream unless John wins the lottery tomorrow.

Going by current market prices and bank rates, here is a rough breakdown of what it would cost to finance a RM250,000, 3 bedrooms, 2 bathrooms, 860sqft apartment in Penampang today.

Property price: RM250,000 Down payment (10%): RM25,000 Maximum loan (90%): RM225,000 Tenure: 35 years Interest rate: 4.65% (not accurate) MONTHLY INSTALMENT: RM1,085

Scenario 2 Mark and Michelle, both in their late 20s, work in an executive position. Their joint take home salary is RM5,000. Unlike John, this couple has a 2-year-old daughter. After renting a small apartment for the last couple of years, they decided that they should get a bigger place to raise their daughter comfortably.

The couple saves RM504 every month, despite having to fork out on groceries, a car loan of RM600, fuel and maintenance, phone bills, baby products, to name a few. The couple monitors their spending wisely and tries to save wherever they can.

Here is a rough breakdown of what it would cost to finance a RM550,000, 3 bedrooms, 2 bathrooms, 1,000 plus sqft terraced house in Penampang today.

Property price: RM550,000 Down payment (10%): RM55,000 Maximum loan (90%): RM495,000 Tenure: 35 years Interest rate: 4.35% (not accurate) MONTHLY INSTALMENT: RM2,296

The government introduced the Malaysia My First Home Scheme; allowing first-time home buyers that earn less than RM5,000 a month to finance a house that costs up to RM500,000. The scheme removes the need for a down payment but the result of which is simply a large loan amount with a weighty monthly repayment.

Even though the property market is hot right now, with developers offering exclusive packages and rebates, it doesn't mean anyone - especially the younger generation, should jump into it before studying the market carefully. Without planning and precise calculation, you might fall in debt holes.

Before buying a property, ask yourself these 3 questions.

1. Do you really need this house? 2. Do you have enough money for deposit and all other fees that might be incurred? 3. Can you manage to repay the bank for 35 years consecutively?

Disclaimer: This article is intended for general awareness purposes only and should not amount to any form of advice. The calculations, information and data contained herein are mere examples and the writer accepts no liability for loss or damage suffered or incurred by anyone as a result of the reliance on this article.