- April 2, 2019
- Posted by: adrianwee
- Category: 文章 Article
“Adrian, I am only 21 years old this year and I’m still studying. Can I possibly buy my first property?”
I have received tonnes of Facebook messages from young people (the millennials). They would like to purchase real estates, but they are still studying, or just got their first job after graduation and is not economically stabile. So, how should they go about this problem?
There is no denying that the sooner you buy a property, the better it is for you. However, do take note that you must be 18 (age of majority) before you can sign your mortgage agreement and Sales and Purchase Agreement. Otherwise, the law will assume that you are still a minor and cannot sign a valid contract. So even when I say the sooner the better, there is a general presumption that it must be above the age of 18.
Here is a case study:
The question is: Can Hebe buy this apartment?
If you want to play a game, you must first understand the rules of the game. Similarly, when purchasing a property, you must understand the rules of mortgage loans. Every bank has different regulations, but it is not far different from each other. These following are some of the key points that all the banks will refer to:
- Calculating loan ability (LA)
I often teach my students that the first thing to do before buying a property is to calculate LA. If you can’t get through even the initial LA stage, you don’t have to waste time talking about buying or not.
Usually the first and second properties can apply for a 90% loan from the bank. Take this story as an example. Hebe wants to buy the first property, so she can get a 90% loan.
Leverage ratio 1:9
Property price: RM 250,000
Loan to apply for: RM 225,000
|2||Multiplied by （×） 0.8||2,000||After income tax deduction, cost of living (80%)|
|3||Multiplied by （×） 0.7||1,400||Debt Service |
|0||Nil. Figure will |
|Monthly car |
|Monthly credit |
|5||Balance||1,400||Leverage / |
|6||Multiplied by |
Number = 200
That’s right, Hebe’s loan ability can go to RM 280,000!
In other words, there is a high
However, what if the price of the property she wants to buy is RM 500,000 instead? We all know that it is quite hard to find a property priced at below RM 300,000 in the city
If that is the case then we must refer to the second step below.
2. Increasing income
From the above LA calculation table, we know that the proof of income is the most critical part. In the case of Hebe, she has no other mortgage and car loans, so the monthly commitment is not the focus that can be started. Instead, income, Hebe can find ways to increase her income so that her ability to borrow can be strengthened.
Another way is to joint name. Hebe can work with parents or brothers and sisters to borrow their payslip to strengthen their ability to borrow a mortgage loan. Let’s say Hebe is looking for her mother to buy a house:
Mom’s salary: RM8,000
Mom’s monthly obligations:-
Car loan: RM1,000
Using the above LA calculation table to calculate, the mother’s lending ability is RM 1,480, multiplied by the magic number 200, and her LA is RM296,000. Therefore, it is absolutely feasible for Hebe and Mom to jointly buy a property of RM500,000!
As a young person starting out in life, everything is difficult at first
Some people buy a house to give their families a better quality of life; some people buy a house to leverage on it and use the rental to get more passive income. Whatever your reason, you must master at least the basic of property investment strategy. If you don’t understand, read a little more related books, or learn directly from experienced people.
If you are interested to learn about property investments, you can contact our team @ 010-2008828 or leave us a message here or at Facebook.
Disclaimer: Different banks have different methods to calculate your Loan Ability. Please communicate with your bank before proceeding.