Even if you don’t plan to buy a house in the next couple of years, it wouldn’t be a bad idea to start thinking about saving for a down payment.
After all, most people will want to own a house at some point—and unlike saving for retirement, where the funds would be untouched for years, the time horizon for a down payment fund is much shorter. If you are 20-years-old this year, you will likely need at least 10 years (or shorter) to build up a solid down payment fund. It really depends on your stage of life.
Plus, being able to commit to a big down payment is a dream—and privilege in a sense— as it can save you a lot of money in the long run because the higher your down payment, the lesser your monthly payment amount and total home loan repayment.
Don’t take down payments lightly because, as a buyer, it will affect the home loan amount that you're eligible to borrow and pay back over a stipulated period of time.
Here’s our handy 101 guide on down payments to help you navigate this complicated financial maze.
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Related: #PropertyHacks: Buying Your First Home In Malaysia – The Pre-purchase Stage (Part 1)
In Malaysia, a down payment is generally 10% of the property purchase price.
What is a down payment on a house?
A down payment is a mandatory, lump sum initial payment made to secure a property from a developer or from a seller. It is typically 10% of the property’s purchase price.
Similar to a deposit, it is made-out-of-pocket, and is followed by a financial arrangement that will satisfy the rest of the debt. However, don’t confuse a down payment with an earnest deposit!
Earnest deposit vs down payment - what’s the difference?
An earnest deposit is a deposit that you pay to the seller or property agent to book a house. It’s your way of demonstrating your interest in a property.
Often described as an initial deposit, it takes up 2% of the total 10% down payment.
What is the usual down payment rate for a house in Malaysia?
Though you won’t be able to pay less than 10%, paying a higher down payment helps reduce your monthly payment amount and total home loan repayment. So the higher your down payment, the better!
Think of it this way: the higher the initial money you put in for a house, the less debt you need to take up over the course of your loan.
Most banks will typically offer home loans of up to 90% of the property’s price for a buyer’s first two residential properties. So if your house costs RM300,000, you need to pay at least RM30,000 upfront.
Here’s the formula:
Price of house - loan amount = down payment amount
RM300,000 - (90% x RM300,000) = RM30,000
We all need a little assistance from time to time, the Malaysian government has established a few schemes to help first-time buyers own a house.
Are there any schemes for down payment assistance?
For many of us, saving up for a down payment is the biggest hurdle to being a homeowner, especially for first-time buyers who have not been able to build significant savings. And we haven’t even factored in rising inflation rates and cost of living.
Besides amping up your saving efforts and being more prudent, home-seekers can also leverage homeownership assistance schemes that either provide assistance specifically for the down payment or other facets of home ownership.
1. MyDeposit or First Home Deposit Scheme
Launched by former Malaysian Prime Minister Datuk Seri Najib Razak, this scheme aims to aid middle-income Malaysians in purchasing their first homes by providing a one-off contribution to down payments amounting to 10% of purchase price, but at a maximum payment of RM30,000.
Simultaneously, it provides incentives for developers to create more affordable homes. A total of RM200 million was allocated for the scheme, and has benefited an estimated 6,666 applicants.
Application is now but closed, but be on the lookout if it opens up again soon.
Eligibility and requirements:
- Malaysian citizen
- 21 years old and above (No maximum age)
- First-time home buyer within one household family (eg. for married persons)
- Gross household income shall not exceed RM10,000 a month (This includes all income be it from employment, business, wage, commission, bonus and other allowances.)
- To purchase a property priced at RM500,000 or lower
- Eligible for a bank loan from any bank in Malaysia (do not have any record of impaired financing)
- The house is not allowed to be sold for a period of 10 years
- The owner is not allowed to rent out the house, and must use it for their own stay only
Check out the National Housing Department’s website for more information.
Related: What Is Malaysia’s Rent-To-Own (RTO) Scheme All About?
2. Fund For Affordable Homes
Bank Negara’s RM1 billion Fund for Affordable Homes aims to support first-time buyers among the low-income groups and help them take a step closer onto the housing ladder. In addition to down payment support, the fund also provides concessionary rates for loans.
- Eligible for Malaysian citizens
- A maximum monthly household income of RM4,360
- Must be salaried workers or self-employed and do not have any record of impaired financing for the past 12 months
- For affordable homes that are priced at RM300,000 and below in the primary market
- Maximum financing rate is 3.5% per annum
- Available for two years starting January 2, 2019, or until the RM1 billion is fully utilised
- Maximum loan tenure is 40 years or up to 70 years of the applicant’s age, whichever is shorter
- Participating financial institutions: AmBank, Bank Simpanan Nasional, CIMB Bank, Maybank and RHB Bank
Check out Bank Negara Malaysia’s website for more information.
3. My First Home Scheme (Skim Rumah Pertamaku)
Administered by Bank Negara Malaysia, this scheme assists young adults aged 40 and below to buy their first home without paying a deposit, or in other words, up to 100% financing.
Gross income must not exceed RM5,000 a month or RM10,000 a month for joint applicants (married couples). In addition, a 10-year moratorium would be applied, so buyers are not allowed to re-sell or transfer ownership of the property except to immediate family members.
Property purchases must be priced within RM100,000–RM500,000. Applicants must be working in the private sector and applications can be done at any branch of participating banks. For a list of participating banks, check here.
4. Rumah Selangorku 2.0 (Selangor Only)
The state of Selangor’s version of an affordable housing scheme, Rumah Selangorku, includes down payment support for purchasers of affordable homes within the state.
A joint effort between the Lembaga Perumahan dan Hartanah Selangor, the goal of the initiative is to help Malaysians ages 18 years old or above, who earn between RM3,000 to RM10,000 to own their first home.
Properties must range from low cost to medium cost not exceeding RM250,000, and applications can be made online at their website.
Saving for a down payment will typically take more than a year, so start saving from young to get a head start!
How long would it take to save up for a down payment?
There’s no real answer to this question. It could be two for some or it could be five for others. Those who are just starting out their careers might need a longer time like 10 years. So it really depends on where you are in your stage of life.
Factors that might affect your down payment fund:
- Your monthly salary
- Your discipline and level of commitment
- The price of your targeted property
- Life stage
- Time horizon of your investment
Essentially, building up your down payment fund requires a long time commitment just because of the sheer amount of money that goes into it. But fret not, we have some tips to help you through this process.
The five best and smart ways to save up for a down payment on a house
1. Plan, plan plan - calculate your budget and time horizon
Before you can start saving for a down payment, you need to know how much to save on a consistent, monthly basis.
Get your financial planning right by sitting down with a financial advisor or a property agent to get a better sense of how much mortgage you would be qualified for with your current income level and overall financial standing.
If you need to do a quick check, there are many home loan calculators out there as reference. We found this interesting calculator by Citibank which could help you estimate the monthly instalments, applicable interest rates and the principal amount that best suits your financial capacity.
Also remember that you have to factor in other expenses like rent, transportation, phone bill, food, and savings for an emergency.
2. Determine your timeframe
Remember how we briefly touched the time horizon? This is where that crucial information comes into play. Saving for a down payment is a type of investment goal—you are saving and investing for a specific purpose.
Figure out how long it will take for you to build a solid down payment— some may take two years, others may take 10 or more. So find out which is more achievable for you. Remember, you don’t want to kill yourself when saving for a down payment, so it must be a realistic timeline.
For example, if you plan on purchasing a home in five years that requires a RM30,000 down payment, you’ll need to be prepared to save RM6,000 (exclusively for your down payment fund) per year until the fifth year. If you want a shorter time frame, then you will need to fork out more each year.
3. Figure out how you are going to save the money
Now, don’t go guns blazing on the next best-performing stock, because there is a fundamental rule that you must remember before investing.
Because building a down payment fund has a definite purpose within a specific time frame, you should not invest aggressively or aka save your money in risk-type investment vehicles such as stocks, Bitcoin etc.
Instead, opt for conservative vehicles like a savings account or unit trust. This is to minimise the risk of losing a lot of your money during the process or even before you reach your time horizon.
It’s better to miss out on returns, then losing the money you needed to buy your home.
4. Work part-time, freelance or increase your monthly salary
We will have to be frank, sometimes, saving may not necessarily be enough. And the truth is, if you bring home a higher income, either through a higher salary or freelance work, the better your chances are of securing a down payment fast.
Time to ask your boss for a raise! But of course, ensure that you are worth the money. You could also use your skills and talents for freelancing or part-time job opportunities.
If you have the capacity and interest, you could also start an online business as a way to generate side income.
Related: 8 Side Jobs for Malaysians to Earn Extra Money During CMCO
5. Build a comprehensive savings plan
At the end of the day, your savings plan should not just cater to your down payment needs— it should be flexible enough to cater to other demands or unexpected events.
These emergencies can include potential road accidents, getting hospitalised for uncovered medical expenses or the temporary loss of a job. No one likes being in these unfortunate events, but life happens. Even if you have set your mind on a specific plan, life still goes on.
So, to avoid a financial meltdown, make sure that you have an emergency fund before saving up for a down payment. By the way, a savings fund is different from an emergency fund.
Related: What Is the 30-Day Rule in Saving Money, And How Does It Control Impulse Buying?
What are the other miscellaneous fees and charges when buying a house?
Oh and besides a down payment, there are tons of other costs and expenses that go into the home-buying process. Yes, buying a house is expensive! Remember, a house is not just the listing price you see online, there are many other costs to it.
- Stamp duty for the Memorandum of Transfer (MOT)
- Sale & Purchase Agreement (SPA) legal fees
- Stamping for SPA
- SPA legal disbursement fee
- Loan agreement legal fees
- Stamp duty for loan agreement
- Loan Facility Agreement legal disbursement fee
- Valuation fees for completed Properties
- Government tax on legal agreements
- Bank processing fee for loan
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