Being able to afford something doesn't always mean that we should go all out and purchase it – especially when we’re talking about a big commitment, like buying a property. Sometimes, we find a good deal and we set our minds on it, thinking that it's the best deal out there. But, is it really?
A conversation between two friends discussing the matter of home loan approval ended with this statement: “With an increment in your salary, your home loan application is more likely to be approved for 85 to 90%, so why not get it?”.
The property in question was a double-storey terrace sub-sale property priced at RM550,000. A discount was given and the stamp duty fees for Memorandum of Transfer (MOT) are waived too. The prospective buyer was advised to take up a loan and purchase the property for as much as her salary could afford – the reason given is that this opportunity may not come again.
“May not come again” may not be totally true. Here are few reasons why we should NOT need to overstretch our finances when buying a home.
There are still plenty of choices out there
If we need a place which is 8km from Kuching city centre, the never-ending choices range from 3rd Mile, Jalan Tun Jugah, Jalan Song, Tabuan Jaya, Tabuan Stutong and so forth…. If we are looking at townships (whether newer or older), the choices are now aplenty – MJC, Matang, Metro City, Kuching City Mall.
Let’s face it, we only need to spend a little more time to search, and not just settle for the first ‘perfect’ deal we come across. Not only do we have the luxury of choice, but also the online tools to make our search quicker and easier.
Don’t mistake affordability as the ‘green light’ to buy
Although RM550,000 seems relatively affordable, it's not a small amount. With a 90% loan, the loan repayment per month is over RM2,500. Assuming that we spend 30% of our salary on this, the buyer/household should have an income of RM7,500 per month, at least. It’s not uncommon for people to turn into mortgage slaves, especially when their home repayment takes up 50 to 70% of their monthly income.
One should consider the possible situation of losing their main source of income, would there be enough savings left? Would they be able to stretch their savings sufficiently during the months of unemployment to service their repayment as well as to cover other financial obligations?
It may not be the best home in the long run
The ‘best home’ status of any new purchase is only for the moment. As our income continues to grow, sooner or later we will be earning RM10,000 or higher. By then, would this home still be the ‘BEST’? Of course not!
We may already want a bigger and better home to support a growing family or perhaps to match our new lifestyle. There’s also the possibility of falling in love with a new township or moving outstation due to work/family situations. Come what may - always consider the future when making a home buying decision.
4. Save it for the right moment
Cash is king. Frankly speaking, the best opportunities come during a slowdown and these opportunities will only be open to those with cash to spare. If we were to have invested all we have into one home (the highest price we could afford), and are using up most of our monthly salary for repayments, bills, and necessities – there wouldn’t be any (or enough) extra cash for that sudden opportunity.
In the business world, even the best companies keep reserves because they know that they may need it sometime in the future. Not many bluechip companies invest everything they have into their business just because they could afford it at that particular moment.
So, how now?
There are many more reasons not to rush in and overstretch your finances, but hopefully the above gave you a clearer insight into the advice given. Even Malaysia is defined as a developing nation because nothing is considered to be at a peak or fully mature yet. However, urbanisation is constantly in progress and Greater Kuching is growing ever larger instead of remaining stagnant.
Keep researching, keep saving and keep investing. That’s the best advice we should always keep in mind.