Here are the 4 Ws and 1 H in financing your home purchase.
1. Where to get financing?
First and foremost, you need to have some monies in your pocket before you commit to any home purchase. You need to provide for the initial booking, deposit, professional fees, stamp duties, property valuation fees etc., depending whether you are buying from the Housing Developer or the secondary market. It is almost impossible to get 100% financing to fund your entire home purchase in the market place.
Your initial monies can be your own savings, your friendly loan from friends and family, your advance salaries from your employer, personal loan from the Co-operative that you are a member to; to even the permitted withdrawal from your EPF contribution that is allowed for first home purchased.
If you are qualified, you might want to explore the various schemes announced under the Budget for the last few years from the very early Skim Rumah Pertamaku to the most recent, MyDeposit scheme last year. Banks are the obvious choice to take care of the rest of your home financing requirements. However, housing loans are also available from Insurance Companies, Licensed Finance Companies, Licensed Money Lenders as well as Building Society although the interest rates, margin of financing, loan tenure, loan repayment and requirements are all unique respectively and are different from the banks.
If you are a civil servant, you can even apply for a housing loan from the Government.
2. When to look for Financing?
It is always good practice to look for financing before you commit to a home purchase. There are also many variances of home financing packages in the offering and you can always shop early to identify a package that suits your needs.
First, you need to get your set of proof on incomes ready so that you can start checking with the Banks on the indicative range of loan amount that they are ready to grant you to finance your intended home purchase. This is extremely helpful to assist you to shortlist properties that are within your affordability and credibility with the bank. Otherwise, you might misinterpret your own credibility and end up disappointed.
Pay a visit to Bank Negara to conduct a check on the CCRIS system as it will also be helpful to ensure your intended loan application goes smoothly without any unnecessary remarks in your record. PTPTN is another marker too for those of you who have a loan to finance your studies.
If you are buying from the secondary market, do not take too long to shop for the best financing package as you are required under the normal transaction time of 3 months to pay the balance purchase price or you are subjecting yourself to late payment interest or even at the risk of termination with forfeiture of your deposit too.
If possible, sign your set of Loan Agreement as soon as you’ve signed your Sale and Purchase Agreement, preferably no longer than 2 weeks after that.
3. Who will borrow?
This is not the same question as ‘who will buy’. Although it might seem obvious that the person that buys should be the one that borrows, there are some strategic considerations involved. A Borrower can be an individual, a group of people of borrowers, an Sdn Bhd, a Bhd or even a Limited Liability Partnership (LLP).
It could also be a borrower with the homebuyer providing third-party security in terms of charging the home so purchased to the bank. The loan approval, the margin of financing, the loan tenure, the rate of interests all depends on the profile of the borrower. Typically, joint borrowers with multiple incomes would have a better chance of loan approval than a single income single borrower.
An income-earning husband would be welcomed as a borrower for a case where the home is purchased under the name of the housewife with no income. The persons with better financial standing could either be one of the borrowers or one of the guarantors. If the Borrower is an Sdn Bhd, Bhd or an LLP, it is also common for the Directors or Partners to give joint and several guarantees for the loan too. Using a company to buy a home of residential purpose would mean a lower margin of financing that requires the purchaser to have a larger sum of initial monies.
4. What type of Financing?
There is no such thing as the standard home financing package as there are many different offerings in the market to cater for the various needs of the borrowers. For starters, there are conventional loans as well as Islamic financing that operates on Syariah compliance principles but available to all including nonMuslims.
Within the conventional sphere, pay attention to the details in things like a term loan, flexi, overdraft, daily rest interests, principal reduction, early redemption penalty, effective lending rate. Take your time to understand the unique features of the housing loan packages on offer to you and select the one that is most suited to your unique profile to ensure that you make the most out of it.
Pay attention to various conditions for the disbursement of the loan sum for little things like opening a new bank account that could delay your progress in completing the home purchase that could potentially mean that you need to pay late payment interests
5. How to select your Financing Package?
If you are buying from Housing Developers, most of the time there will be a panel of Banks that are ready to consider your loan application strictly based on your profile. Unlike the secondary market, there is a need to have a property valuation report to be done on a case-by-case basis to satisfy the lending Bank along with your profile as a borrower.
You need to also approach the banks on your own, although the real estate agents, as well as your lawyers, might give you professional references within their network.
Consider your unique need in financing, your preferred income and repayment pattern as well as your objective in your home purchase to enable your best selection of the home-financing package. There is no best loan package universally but there is certainly one package that works best for you.
As for the need of Mortgage Insurance like MRTA/ MLTA, it is at your discretion unless the loan package prescribes it as the condition for approval. The premium involved could actually be part of the loan sum or you could choose to pay with your own funds. There are pros and cons to Mortgage Insurance and it is certainly worth considering for a genuine homebuyer.
This article was originally published in a Property Hunter Magazine by Chris Tan.