How Much Home Loan Can I Afford Based On Salary In Malaysia

2020-11-20

For first-time home buyers, it is tempting to consider owning a home without sitting back to look at your finances. Undoubtedly, choices are aplenty when it comes to new property projects in Malaysia.

However, while you are excited about buying a property in Malaysia, you should understand that your salary plays an integral role in how much home loan you can be approved for. There is no avoiding this reality, hence, the earlier you understand the concepts of home affordability and mortgage loan procedures in Malaysia the better for you.

Are you looking to acquire a new residential property in Malaysia? There are a few things you should know about the relationship between your average income and home property loans in Malaysia.

1. The Down Payment

Most banks in Malaysia offer 90% financing for home loans. For instance, if you are buying a residential property for RM520,000, you are sure to get a maximum of RM468,000 loans. Banks expect you to provide the down payment which is the remaining 10%.

Typically, the down payment is split into a Sales & Purchase Agreement (SPA) – to be paid to the seller or property developer which is 8% (which is RM41,600) while the remaining 2% (RM10,400) is for the booking fee – to be paid to a property agent to process an Offer to the Purchase agreement.

*There are also banks that offer up to 100% financing, such as BSN under its BSN MyHome or Youth Housing Scheme.

There are several ways to source the down payment, including EPF.

Accessing EPF for the Down Payment

When asked to deposit 10% as the down payment for the property, you can opt to withdraw from your EPF (Employee Provident Fund).

Basically, your EPF is divided into a ratio 7:3. 70% cannot be accessed until your retirement while 30% can be used for property purchase, medical expenses, education and more.

2. Know your average monthly income and home loan affordability

The Government and the Malaysian Department of Statistics (DOSM) are diligent in keeping track of the average incomes in Malaysia. With this information, you will better understand how affordability looks across the country. Check out the average incomes for Malaysians who live in rural settings and those who live in urban areas below:

AVERAGE RURAL INCOME IN 2018 – according to the Department of Town and Rural Planning, the term ‘RURAL’ refers to areas where the lands are forested or mostly used for agriculture.

Monthly Mean	Monthly Median
RM1, 481	RM2, 083
Annual Mean	Annual Median
RM17, 772	RM24, 996

AVERAGE URBAN INCOME IN 2018 – according to the DOSM, the term ‘URBAN’ refers to areas where 60% of the population – from 15 years and above – is involved in non-agricultural activities.

Monthly Mean	Monthly Median
RM2, 415	RM3, 274
Annual Mean	Annual Median
RM28, 980	RM39, 288

With this information at hand, it is easy to calculate the affordability and maximum loan amounts for a range of salaries in Malaysia.

Remember, the following calculations are based on affordability, assumptions of interest rates and current debt obligations. The real figure may vary + or – RM3, 000. However, this can still serve as a good guideline.

Single/Household Annual Income (RM)	Maximum Home Loan (RM)	Property Value (RM)	Monthly Payment (RM)
17, 500	86, 500	100, 000	383
25, 000	142, 962	160, 000	633
30, 000	180, 679	200, 000	800
35, 000	218, 395	245, 000	967
40, 000	255, 886	285, 000	1, 133
50, 000	331, 320	370, 000	1, 467
100, 000	707, 583	785, 000	3, 133
200, 000	1, 460, 562	1, 600, 000	6, 467

The Reason Most Home Loans Are Rejected

Besides your income, there are a number of other reasons why home loans are rejected. They include:

- Financial institutions consider your spending habits, your outstanding debts, and other things that affect your credit score.

- The Debt Service Ratio (DSR) – banks use this to decide if you can afford to pay each month for your home loan in Malaysia.

- General economic conditions like COVID-19 and national or global economic hardship can prevent banks from granting mortgage loans.

Final Thoughts

The overall property market will adjust (by at least 10%) post-MCO, so we’d expect a lot of sellers to drop their prices. This is good news and an opportunity for potential buyers who are looking to buying a residential property.

Have you found your dream home? Now is a good time to purchase a property and enjoy a lower interest rate. It doesn’t take too long to begin the process. Residential properties in Malaysia include luxury, spacious, low-density, high-rise buildings with on-site amenities and outstanding infrastructure.

Once you find how much home loan your salary will allow you, then you are good to go.