After scrolling to PropSocial’s website, you sort of have the idea of buying your first house. The million dollar question is - Should you buy a home right now or wait till you’re older? Well, the truth is there is no perfect age to buy a house.
But still, it’s worth noting that the older you get, the potential loan term afforded to you does decrease. The maximum is 35 years (or lesser with certain lending banks) or the number of years before you reach the age of 65.
This means that if you were to buy a home at age 40, your maximum loan tenure would be 25 years (or lesser). A shortened tenure could mean higher monthly repayments because you will not have the option to draw out your loan for a longer period.
This lowers the affordability of installments and gives you less freedom when buying i.e. having to choose a lower priced house or look for a cheaper location.
Furthermore, waiting to buy could be an expensive decision as housing prices will expectedly increase.
So does this mean you should rush to buy a home?
First off, do acknowledge that buying a home is a serious financial responsibility. And, while it is common knowledge that property prices aren’t going down, attempting to buy a home before you are ready could hamper your homeownership goals.
However, it does help if you are financially mature enough to make such a commitment-heavy purchase. Unfortunately, there isn’t an age assigned to financial maturity.
Before we proceed any further, come check out the short video below first to see how younger generation reacts to buying a home.
What does it mean to be financially mature?
Being mature, financially, means that you fully understand the money responsibilities of your predicament, in addition to having the necessary resources or know-how to manage your financial situation.
For a more practical take, here’s a checklist to help you figure out if you are indeed ready to buy your very own property and what you can do to attain financial maturity:
(i) Do you have enough saved up for a deposit?
While you can technically access 100% loans, where no deposit is needed to buy a home, ‘zero-down’ loans, come with restrictions and potentially higher interest rates. But, the real issue is here is that approval rates are low.
Realistically, preparing a down payment will certainly make the process of home ownership much smoother. You should have at least 10% of the house price saved up. The more you have, the better your chances of getting your loan approved. You’ll likely to save more in interests as well.
Nevertheless, don’t worry if you don’t have enough saved up. You might still be financially mature enough to own a property if you have low-cost access to deposit funds such as a good amount in your EPF account, a subsidised loan option from your employer or approval from a government housing program.
Read also: How To Withdraw From Your EPF Account To Buy A Home
(ii) Do you have a steady source of income?
As you know, buying a home is an expensive venture. Not only will you have to think about the monthly installments, you‘ll also have to consider property taxes, insurance, maintenance and other miscellaneous costs that will pop up from time to time.
Thus, it’s best to only seriously consider buying, when you have a steady income stream to support your purchase.
You might feel the pressure to buy a home when all you peers and relatives have become homeowners but you should attempt to do so only when you are financially ready. Take note that buying before you are ready might cause you to incur unnecessary debt, waste money with high-interest loans and even suffer potential bankruptcy.
Financial freedom is not something that you can achieve. So, to be on the safe side, planning is needed. One way to improve the course of money fluctuations is to simply start a dedicated reserve for your home loan repayments and other expenses.
(iii) Do you have a backup plan in case of financial emergencies?
So, what happens if you are suddenly unable to make repayments? If you continue to ignore your installments, it’s likely that you’ll lose your home, rack up heavy interest penalties, have your credit score tarnished and worse - bankrupt.
If you think this is the worst case scenario, think again! The second highest cause for bankruptcy in Malaysia is housing loan defaults. Without a backup plan in play, it’s easy to go down such a path. The first thing to do is have an exit strategy the moment you realise that you can’t make your loan instalment payments.
The financially mature will know how to manage their property at the first sign of trouble and look for other cash options to cover the repayments. For instance, they might use their EPF funds to redeem the loan or reduce instalment amounts.
If that is not possible, the next step would be to contact their financing bank and ask for their loan to be restructured to an amount that they can comfortably repay. For example, increase the loan term and reduce month instalments, adjust interest rates, refinance the loan and etc). Do ask for help from the Credit Counselling and Debt Management Agency to negotiate with the bank on your behalf if you are in serious debt.
Lastly, if none of these options work, you may need to sell your home and use the proceeds to pay off your loan. If you have built up equity in your home, where the market value has increased, you might be able to walk away from your property without a financial loss or just a minor one. But the key takeaway here is that at the very least, you’ll still be in a strong position to attempt buying a home again later on when you are actually ready!
Bonus Tip: When you buy a large asset like property with a loan, consider purchasing insurance to cover the instalments in case of unfortunate events. For instance, you might need a life insurance policy or Mortgage Reducing / Level Term Assurance (MRTA / MLTA) to cover the loan in case of death or total permanent disability. With this, you can protect your asset for yourself and for your family.
If all the answers to the above questions are 'Yes', you may have been stable enough to start your journey own a house, no matter what age! Do not forget to compare properties on PropSocial website to make better decisions.
(Written by: Desiree Nair, 11th August 2017)
