guide for first time home buyer malaysia

First Time Buying A Home? Here’s a Simple, Step-By-Step Guide for You

By: Guyub
1st Jan 2022
Buy & Sell

Chances are that you are here because you feel ready to embark on the biggest decision and purchase of your life – buying your first house!

Purchase of any property involves intricate legal issues and procedure that may sound alien to people without legal background and knowledge.

Fear not, however, for buying a home is actually not as complicated as it may seem as we will try to provide you with easy to read and understand guide. Here’s a simple, step-by-step guide from us to help first-time home buyers like you on this new and exciting journey.

1. WHAT’S YOUR BUDGET?

What can you afford? You will want to ensure that you are able to cover all costs comfortably, without straining your finances or your quality of life.

Downpayment

Be sure to have at least 10% to 20% of the property price. Most banks will loan up to 80%-90% of your home purchase price for your first and second property depending on your financial qualification and type of property.

The fee, cost and expenses involved would usually include the following:

Other Initial Fees & Charges*

Stamp Duty for Instruments of Transfer

Based on purchase price:

First RM100,000 – 1%

Next RM400,000 – 2%

Subsequent amount after –  3%

Stamp Duty for Loan Agreement

0.5% of purchase price

Legal Fees for Sales & Purchase Agreement (SPA) 

Based on purchase price:

First RM500,000 – 1%

Next RM500,000 – 0.8%

Next RM2,000,000 – 0.7%

Next RM2,000,000 – 0.6%

Next RM2,500,000 – 0.5%

Legal Fees for Loan Agreement

Based on loan amount:

First RM500,000 – 1%

Next RM500,000 – 0.8%

Next RM2,000,000 – 0.7%

Next RM2,000,000 – 0.6%

Next RM2,500,000 – 0.5%

Disbursement Fees 
(includes fee for transfer of ownership title, loan facility agreement fees, SPA stamping and legal disbursement fee)

RM300 – RM1,500

Valuation Fee
(For sub-sale properties only)

Based on purchase price:

First RM100,000 – 0.25%

Remainder amount (up to RM1,900,000) – 0.2%

Government Tax on Legal Agreements

6% of total lawyer fees

Bank Administrative Charges for Loan

Loans up to RM30,000 – RM50; 

Loans of RM30,001 to RM100,000 – RM100; 

Loans above RM100,000 – RM200

Real Estate Agent Fee 
(if any)

2% – 3% of purchase price

Source: iMoney, PropSocial, RinggitPlus

From time to time, remittance of stamp duty (rebate) may be provided by the Inland Revenue Department depending on the type of transaction, property and development. Please consult the lawyers or the developer for more information.

Monthly Loan Instalments

Next important question: can you afford monthly instalments for the next 35 years (or less, depending on your age)? This will differ from person to person depending on your home loan type, home loan interest rate, and tenure.

You can get a rough estimate by using one of the home loan calculators available online, like ours here

Tip: A good way to check if you can afford your home is to not exceed ⅓ of your net monthly income. Alternatively, you can calculate your monthly minimum household income with this formula:

[(monthly installment + monthly debt)] / 70% (Ideal DSR percentage)

If you don’t earn anywhere close to the amount you get from the formula above, that means you won’t be able to afford the home.

2. FINDING YOUR FUTURE HOME

Now that you have got your finances planned and settled, it is time to decide on your future home!

As you search, consider these few factors:

  • Size & house type; according to your needs & preference
  • Type of development
  • Brand new or sub-sale
  • Location
  • Distance to your workplace
  • Amenities for your daily needs & entertainment
  • Connectivity via highways & network of roads
  • Proximity to public transport (especially if you don’t own a car)
  • Developer reputation
  • Overall security & the neighbourhood
  • Condition of the home (sub-sale property)

Right here on Guyub, you can choose from an extensive selection of properties – start your search here.

3. CHOOSE A HOME LOAN

So, after months of searching and comparing home prices – you have finally found “the one”!

Your next step, before deciding to pay the booking fee/ earnest deposit (normally 2% – 3% of the property purchase price), enquire with the banker of your eligibility for loan and appoint a lawyer to carry out searches on the property.

There is a legal principle called caveat emptor also known as “buyer beware”, in which it is the buyer’s own responsibility to carry out the required enquiries and searches on the property.

Next, after you pay the booking deposit you may then apply to the bank to secure a housing loan.

Below are a few types of home loans available on the market:

Term Loan

With this loan, there is a fixed amount of repayments over a fixed period of time (loan term), with fixed interest rates.

Semi-Flexible Loan

Fixed amount of repayments over a fixed period of time, but you can choose to pay more to enjoy lower interest amounts! Overpayment can be withdrawn, but penalty fees will be charged.

Flexible Loan

This is similar to a semi-flexible loan, but the difference is that it is linked to a current account. Overpayments can be withdrawn anytime without any penalties incurred.

Islamic Home Loan

A shariah-compliant loan that has no elements of money lending or interest (riba). This loan offers fixed instalments that do not include/is not affected by interest; property is owned by the bank. Both Muslims & Non-Muslims can apply.

A few key things you will have to take note of are also the interest rates, loan tenure and lock-in period (set length of time where you will have to pay a penalty if you pay off the loan in full).

It will take 2 days to a week for your loan application to be approved. You can also choose to hire a mortgage broker to help you with this process.

Your property will be made a collateral and security for your bank loan which is known as a Charge or Assignment. Popularly this concept is known as mortgage.

IMPORTANT: Before applying, be sure that you have a healthy credit score and Debt Service Ratio (ratio of total debt to household income) – your loan approval will depend on these two things!

4. LAWYER UP

Having a conveyancing lawyer keeps you protected during the process. They will help you carry out searches on the property and prepare the relevant legal documentation, such as the Sale and Purchase Agreement (SPA) and other instruments of transfer.

If you are getting a loan, lawyesr will also be needed for the preparation of the loan agreements!

5. MAKE AN OFFER (FOR SUB-SALE PROPERTY)

This is when a real estate agent comes in handy. You may contact a real estate agent to assist you in choosing your home and advise you on the initial step in selection. After you have chosen your home, the real estate agent will be responsible for the communication with the seller to make the offer.

If yes, the agent will then advise you on a suitable offer price and strategy (if there are other offers). If the seller chooses to propose a counteroffer, the agent will also help you restrategise and renegotiate with the seller.

Don’t worry with the real estate agent’s fee as the fee is usually borne by the seller and in law the real estate agent usually represent the seller. At this point it will be advisable to seek legal advise.

6. LETTER OF INTENT TO PURCHASE

Upon confirming with your developer/seller that you want to buy the home and have agreed on a price, the developer or real estate agent will usually request you to sign a document known as Letter of Intent or Offer to Purchase document which sets out the initial conditions of offer and purchase (eg: refund of earnest deposit). Do take note of details such as:

  • The selling price of the property
  • Whether fixtures & furnishings are included
  • Date by which the formal SPA should be signed
  • Any particular condition of the property
  • The property or any renovation done must have obtained CCC (Certificate of Compliance and Completion) or CF (Certificate of Fitness)

You will also need to pay the earnest deposit – 2% to 3% of the property price which will be counted as part of the 10% downpayment deposit.

At this point it is advisable to engage a lawyer to advise on the terms and conditions of the Letter of Intent or Offer to Purchase, the subsequent intended SPA and to assist you in the negotiation with the seller or the seller’s lawyer

7. SIGNING THE SPA

Upon signing the Letter of Intent or Offer to Purchase, you should engage your lawyer to negotiate and draft the SPA. Note – Lawyers are not allowed and cannot act and represent both seller and buyer. Make sure you appoint a lawyer of your choice and you are comfortable with.

Usually, the Letter of Intent or Offer to Purchase will provide 2 to 3 weeks for the signing of the formal Sales and Purchase Agreement (SPA) – a binding contract that contains the full terms and conditions of your home purchase. This will be drafted by your lawyer, and upon signing, no further negotiations can be made. Do make sure you discuss with your lawyer and fully understand the terms and conditions of the SPA.

At the stage of signing SPA usually you will be required to pay the remaining 8% downpayment deposit.

8. SIGNING THE MEMORANDUM OF TRANSFER (MOT) & LOAN AGREEMENT

Your conveyancing lawyer preparing the SPA will also prepare some other documents such as Memorandum of Transfer or Deed of Assignment (Legal document for transfer or assignment of ownership from the seller to the buyer).

For the loan, the bank will require the engagement of a lawyer in the bank’s panel for preparation of the loan securing documentation such as loan agreement, charge annexure, assignment and power of attorney (depending on the type of loan and property) to be signed by you and the bank. You will also be given the option to take out a mortgage insurance policy and advisable to do so.

The Loan Agreement contain the terms and conditions of the home loan.

9. PAY UP THE UPFRONT COSTS

You are one step closer to owning your dream home! After doing all that, you will have to start paying for all the other costs mentioned earlier at the start of this article.

Payments should be paid up by the dates stated in the SPA to avoid late payment charges – so be sure to keep up with the payments (and your lawyer!).

The bank will only release the loan after you have fully paid up your part of the purchase price known as differential sum (the difference between the loan sum and the purchase price).

The countdown to receiving your keys (taking of possession) officially starts now.

10. RECEIVE THE KEYS TO YOUR NEW HOME

Subsale Property

Once all documents are signed and payments of purchase price is completed, the seller will deliver vacant possession of the property – which means the keys will be handed over to you within the timeframe stated in the SPA.

IMPORTANT: Once you get the keys, check if all bills, fees and taxes are paid off by the previous owner. Do instruct your lawyer to request all these documents of bills and payment from the seller.
You are responsible to attend to the TNB, utilities companies (board) and the local council to effect the change of name of billing into your name.

New Property purchase from developer

Upon signing the SPA, handover of keys (delivery of vacant possession) must be done :

  • Within 24 months (strata-titled property, eg: high rise residences) or,
  • Within 36 months (individual-titled property, eg: landed residences)

For new property purchase, the payment of purchase price is to be made progressively in accordance with the stage of completion of the construction supported by the architect certificates.

All payment of deposit and booking fee should be made directly to the developer and the developer is only allowed to collect such deposit and booking fee when they have obtained advertisement and sale permit from the relevant authority. Do not fall prey to unscrupulous practice by paying deposit and booking fee to person claiming to represent the developer or paying to developer before the developer obtain advertisement and sale permit.

After the handover, be sure to do a detailed inspection of the home for defects and issues, and report them within the Defect Liability Period – the warranty period for new homes where developers are under obligation by law to repair reported defects at no cost.

The Defect Liability Period for most homes is usually 24 months starting from the day of vacant possession of the unit.

Important pointer

Quite often, buying property is the single biggest investment in your life, don’t act hastily, always get your advise from the correct qualified professional. Do your searches and enquiries. Make sure you understand the terms and conditions of the SPA and the steps involved before making any decision.

The statement and information in the articles are the opinion of the writer and meant only as a guide. Any property purchase, rental or lease involve many legal issues and other complication depending on the individual facts and circumstances. Readers and Users are strongly advised to seek professional advise including from qualified and competent lawyers, bankers and/or real estate agent to verify the information and the statement before embarking on any purchase, rent or lease of any property. To the fullest extent permitted by law, we exclude and disclaim liability for any losses and damages of whatever nature and howsoever cause and arising including without limitation, any direct, indirect, general, special, punitive, incidental or consequential.

Browse other guides