As affordability for homeownership declines, more of the younger generation are considering to defer buying for the time being. But is this a wise move? When is the best time to buy your first home?
Yes, buying a home is undoubtedly a big responsibility and while it’s still on the wish-list of many young Malaysians, realising the realities of how much this major purchase is going to cost, most are immediately (and understandably) discouraged.
In effect, more potential buyers are pushing back the purchase of their first home. However, waiting may not necessarily be the best move and here’s why:
1) Property prices are on the rise.
The number one reason cited by potential homeowners in their mid-twenties to early thirties is a lack of ‘small’ funds needed to cover entry costs. But unfortunately, if prices rise and salaries increase only marginally, the chances for homeownership are only going to get bleaker.
2) Excess resources are wasted on unnecessary expenses.
Did you know that Malaysians aged 25 to 40 are notorious for taking out car loans that they are unable to service in the long-run? Approximately 80% of this demographic are bankrupt due to car loans. So instead of wasting your money on a deposit for a new car and expensive auto loan repayments, consider that your excess funds can better utilised. Why not channel it into a flexi home loan which in turn can help you own your home sooner.
3) Rent payments do not carry an investment value.
Money spent on rent could be going towards your very own home. No doubt there are obvious budget-related perks to living in a rented place such as avoiding property taxes, some maintenance fees and home loan interests. Eventually however, you lose out on the possibility of growing your money and a sense stability that comes with having a place to call your own.
Getting ready for homeownership
Buying a house takes preparation, it is by no means a last minute decision, and so if you do not have the funds you need at present, then follow these tips to lay the groundwork for future homeownership.
1) Plan ahead – Decide in advance how much money you need to save, borrow, and raise (grow through investment) for your down payment and other entry costs. More importantly, estimate a reasonable time frame to achieve these little goals.
2) Prepare a budget – How you spend will affect how you save, and often, proper budgeting will have you rethink your financial lifestyle.
3) Make this goal a priority – Be single minded and make decisions that positively contribute to your goal of homeownership.
4) Increase cash flow – While it’s easier said than done, bringing in more money is a MUST. In fact, generating a passive income and investing in real estate are two of Robert Kiyosaki’s most sage advice for increasing wealth.
5) Borrow short-term cash requirements from friendly lenders – Since down payments and other entry costs are serious barriers for homeownership, do get help from your parents, siblings and other relatives where possible. With assistance, you can reduce bank borrowings and interest charges as well as improve repayment affordability.
6) Choose modest homes – You don’t need to buy a sprawling mansion, instead seek out homes with lower price tags to get started. Strictly buying what you can afford will help you stay on point for repayments and limit chances for default or bankruptcy. Use PropSocial to help you find quality homes for your budget.
7) Look for homes that can offset instalment payments – Basic apartments in holiday spots can garner short-term rental incomes that help you make payments for a home that you do not plan to occupy.
8) Talk to a licensed financial planner – Even though the services of a planner will cost you, it’s an important cost to bear. A planner can help you personalise a plan to reach this specific goal through efficient money management.
On the flipside, if you’re already in your 40s and over, your window for loan eligibility is closing fast, but don’t let this stop you from becoming a homeowner.
Depending on how well you’ve managed your finances over the years, you may now be in a better position to make a home purchase than compared to 10 years ago. For instance:
- You may have hefty savings to enable a larger down payment.
- A proven track-record for years of properly managing credit balances, etc. might afford you better interest rates.
- Your EPF Account 2 is likely to be better stocked, so again you can withdraw for a larger down payment, and reduce your burden of monthly repayments (or balance against limited loan tenures).
- If you have a professional working background, you may be permitted to borrow more based on a larger debt-to-income ratio (above 33%).
Moreover, your reasons for buying may be different now; perhaps you can’t stand having to move out of another rented home again or maybe you’re just looking for a modest place for retirement. And this too makes you a better buyer than your younger self would have been – you’re less likely to take on risky, speculative home flips or buy properties that are too grand to maintain.
Thus, if you are a little older and wiser, you can still consider buying a property – just don’t wait too long! You don’t want a limited tenure to significantly raise monthly instalment amounts especially if you are unable to foot a larger down payment.
Owning your home is definitely a major undertaking, one that requires serious commitment. Thus, even though the funds to make the purchase are available; some just aren’t bold enough to take the leap. And it is completely understandable; however, you are missing out on the potential to profit from one of the steadiest investments out there. In fact, your home may be your ticket to early retirement, now, doesn’t that sound like incentive enough?
If you start small and avoid taking on a loan that is too taxing, it is completely possible to become a homeowner at almost any age.
(Written by: Desiree Nair, 28th December 2015)
Check out 'Buying A House At The Age of 21' funny video: