As a fresh grad, you’ll have dreams of finding the perfect job, the perfect employer, and the perfect paycheck. Soon, you’ll be able to put a down payment on your dream home and travel the world!
But okay, let’s be realistic here. The rising costs of living and stagnating wages have made it difficult for fresh graduates to buy a property.
This guide will walk you through the necessary steps you can take to buy a property in Malaysia right out of university.
Challenges With Buying A Home As A Fresh Grad
First things first, it’s great that you’re already looking into buying a home right out of graduation!
However, most fresh grads face the same problems when it comes to buying their first home – saving up enough for the down payment (plus all the other related costs), as well as building up the creditworthiness to obtain a home loan.
A down payment is usually 10% of the property’s purchase price, which you’ll need time to accumulate. That’s RM50,000 for a RM500,000 property. Banks will also require a paper trail of stable income, usually at least 3 to 6 months’ worth.
Knowing that, the best way to successfully apply for a home loan immediately out of graduation is if you’ve already been saving up and building good credit throughout your schooling years. If not, you’ll need to give yourself time to get a job and boost creditworthiness.
Other factors which might affect your ability to obtain a home loan include:
- No proof of good repayment behaviour
- Insufficient income to afford the property you’ve chosen
- Insufficient savings/EPF
- Lack of employment stability and continuity (still new at your job etc.)
- Unfavourable credit score
Can Fresh Grads Apply For A Home Loan In Malaysia?
If you’ve got enough funds and the creditworthiness to back it up, you’ve got a high chance there!
Let’s say you’ve got RM50,000 in cold hard cash already accumulated in savings by the time you graduate (lucky you!).
You might still be able to get a home loan even if you’re just starting out in your career, provided you’ve held down stable employment with decent income for at least three to six months.
Another way to approach buying a house as a fresh grad is through a joint home loan. This type of loan combines the income and credit reliability of you and your co-loaner to boost purchasing power.
As a fresh grad, taking on a joint loan with a parent/spouse/sibling with stronger income and creditworthiness than you is greatly beneficial, and will improve the chances of your joint home loan approval.
But wait, there are huge downsides to that path too!
When one party fails to hold up their side of the agreement, it might not only affect the credit score of the other party, but may lead to strained relationships between both parties too. Joint home loan applicants may also not be eligible for certain affordable housing schemes.
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Time To Research For A Property That’s Right For You
Buying a house as a fresh grad means there are also considerations to take into account when choosing where to buy your new property.
Start off by setting a realistic picture for yourself. Being able to buy a house and being able to afford it are not the same thing!
The 3-3-5 rule is a helpful guideline which sets out certain rules of thumb to make sure you’re not spending above your means:
Rule 1: Your initial capital should be at least 30% of the property’s asking price.
Rule 2: Your monthly loan repayment should not exceed one-third of your monthly salary.
Rule 3: The purchase price of your new home should not exceed more than five times your annual income.
Rule 2: Your monthly loan repayment should not exceed one-third of your monthly salary.
Rule 3: The purchase price of your new home should not exceed more than five times your annual income.
Many fresh grads also find themselves tempted by brand new developer units. While new properties may offer up discounts galore, they’re also associated with more risks and uncertainties.
Subsale properties on the other hand, typically require more cash upfront but may offer better rental yield and return on investment.
Read more on the pros and cons of brand new vs subsale property here. Remember that property ownership is highly subjective and is rarely black and white.
Now that we’ve got the basics out of the way, here are some important questions for you to ask yourself before you even graduate:
1) Consider the locality – does it align with your career and lifestyle?
As a fresh grad, you’ll need to consider where you plan to work and live in the long run, which will also determine where you buy a property.
For instance, the median prices for a terraced house in Kuala Lumpur and Selangor differ by a substatial amount, with the former at RM766,000 and the latter at 465,000.
Based on your salary and cost of living, you can better estimate what property your salary can afford. Here’s an example to give you a better picture.
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How much home loan can I get with my salary?
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Term
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35 years
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Interest rate
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4%
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% of income spent on loan
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35%
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Monthly debt obligations
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RM1,000
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Gross annual income
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RM55,000
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Maximum Monthly Mortgage Payment:
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RM833
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Maximum Loan Amount:
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RM188,132
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Can I afford the median price of a property in that locality?
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Median price of terraced house in Selangor
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RM465,000
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Monthly Mortgage Payment (35 years):
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RM997
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Maximum Loan Amount (90%):
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RM418,500
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2) How do I cut down debts and build good credit?
Your income isn’t all that matters when it comes to buying a house. You might have enough cash on hand, but as a fresh grad who just started working, you might not have had enough time to build up your creditworthiness.
In fact, 54% of Malaysians cite poor credit history as their main difficulty in securing a home loan. There are five factors which impact a borrower’s credit score:
- Payment history
- Amounts owed
- New credit
- Credit mix
- Credit history length
Banks may view fresh grads who’ve just started to establish their credit score as less trustworthy. 53% of young Malaysians aged between 22 to 29 years old are also unaware of their Debt Service Ratio (DSR).
To improve your chances of getting your loan approved, you’ll need to pay attention to that! To simplify, your DSR is the ratio of your debts to your income. That means the lower your DSR, the better.
Here’s an example of what a fresh grad’s DSR might look like with the assumptions below:
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Example DSR calculation for a fresh grad
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Monthly net income
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RM4,000
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Total monthly commitments
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Car: RM600
PTPTN: RM400
Credit card repayments: RM200
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Home loan you’re applying for (monthly repayment)
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RM1,200
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DSR: (RM2,400/RM4,000) x 100%
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60%
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Ideally, your DSR should be no more than 30 to 40%, but it’s not unlikely that some banks will approve your loan even with up to 60% DSR.
As a fresh grad, start by paying off your big-ticket debts such as credit card bills, and making consistent and timely repayments for all debts such as PTPTN or car loan repayments.
3) What can I do to make more money and save up?
Don’t make the mistake of confusing eligibility for affordability! Buying a house doesn’t just involve the down payment and monthly repayments. Below are some other costs associated with buying a new home:
- Sale and Purchase Agreement (SPA) Legal Fees: 1% for the first RM500,000
- Legal Fees for Loan Agreement: 1% for the first RM500,000
- Stamp Duty Fees for Instrument of Transfer: 1% for the first RM100,000
- Stamp Duty Fees for Loan Agreement: 0.5% of loan amount
Other potential fees include maintenance fees (for strata-titled properties), utility costs, renovation and furnishings, moving fees etc. The financial burden of buying a house isn’t something to be taken lightly.
Outside of creditworthiness, you might also want to work on growing your monthly income to boost your purchasing power – be it freelancing, taking on a second job or starting a small business.
The average fresh grad’s salary ranges between RM3,000 to 4,000, which makes buying a house no easy feat – especially in urban areas. Perhaps look into how you can upskill and invest in yourself to improve your value within your niche.
How you save and invest your income is also key to being able to afford a property even with a fresh graduate’s salary!
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There’s No Deadline To Home Ownership, So Don’t Rush Into A Decision
In summary, you can get a home loan as a fresh grad – provided you’ve built up enough funds and creditworthiness either during your schooling years or in the first 3 to 6 months of working full-time.
If you’ve yet to achieve that stage, fret not! Focus on these steps below and all your hard work will pay off in due time:
- Research wisely for a property that’s right for you
- Make sure the location aligns with your career and lifestyle
- Work on reducing your DSR
- Build up more income
- Be frugal – save and invest with a plan
Above all, what matters most is that you choose the right property for you and are not stretching beyond your means. Rather than chasing a timeline, it’s alright to take time to build up your purchasing power!
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