Buying a new house is an extremely exciting time, but it can also be a confusing one. It’s not enough that you have to find that dream home you want to call your own, you also have to navigate all the financial and legal details along the way.
The financial elements of home buying are often puzzling, and sometimes stressful. That’s why we have created this handy guide to your first down payment. So what is it, and why is it important for your property purchase?
1) What Is A Down Payment, And How Much Do I Pay?
A down payment is a mandatory lump sum payment made upfront for the purchase of property, whether it’s purchased from a developer or direct from a seller.
Buyers are required to pay a minimum 10% of the property’s purchase price. That means if a house costs RM400,000, you will be required to pay at least RM40,000 upfront.
The remaining amount (90%) can be paid using a home loan or any other similar loan.
Buying Price of House – Loan Amount = Down Payment Amount
RM400,000 – (90% x RM400,000) = RM40,000
2) Is A Down Payment Amount Fixed?
The minimum down payment amount on a property purchase is usually 10% of the transaction price. However, we talk about ‘minimum’ rates when it comes to this because there is no specified upper limit.
Some homebuyers pay more upfront in order to reduce their overall home loan, and thus reduce their monthly payment amount and total home loan repayment schedule.
3) Is A Deposit The Same As A Down Payment?
At first glance, a deposit and down payment may seem the same but there’s actually a difference between the two.
The difference between a deposit and down payment is the amount paid, as the deposit is just a small amount of the entire down payment.
The first part of a down payment is usually paid as part of an earnest deposit. In most cases, that’s a non-refundable 2% payment to show you are ‘really serious’ about purchasing the property.
The earnest deposit is paid as part of a Letter of Offer, or Offer to Purchase. The terms of this agreement often stipulate that the 2% payment cannot be refunded in the event that an agreed deal is not completed.
It’s important to make sure this payment goes through a reputable real estate agency or neutral third party, and never pay this directly to an individual.
On the other hand, the remaining amount of the down payment is to be paid fully on the day of the signing of the Sale and Purchase Agreement (SPA), so make sure you have enough in your savings to cover it!Check out properties for sale
4) What Happens When You Make A Down Payment?
A down payment is typically made by a buyer to a seller to secure a sale.
They occur most frequently for property transactions, but expensive, rare, or highly sought-after items might require a down payment too, so the seller can secure a sale and the buyer can secure the item.
Oftentimes, there will be a clause within the agreement that states if the buyer should be unable or unwilling to finalize the sale, the down payment is completely non-refundable.
Whereas if the sale does go through, the down payment amount will be subtracted from the total amount owed.
5) When Do You Pay The Down Payment?
Your Letter of Offer or Offer to Purchase will usually define the timeframe in which you must complete your Sale and Purchase Agreement (SPA).
Once that SPA is confirmed, the full down payment must be made. The total value must meet the minimum 10% payment amount as noted above.
However, the earnest deposit you may have previously paid can count towards that. So if you’ve paid 2% earnest deposit, the remaining 8% balance will be due at the signing of the SPA.
6) What Are The Schemes Offering Down Payment Assistance?
Saving up for the down payment is often one of the most challenging parts of buying a home, particularly for first-time homebuyers.
But there are a number of assistance schemes available to help you with that:
6a) Housing Credit Guarantee Scheme (HCGS)
The HCGS is expected to guarantee home financing up to RM5 billion, and this is expected to benefit 20,000 borrowers in need.
Rumah Selangorku (RSKU) was first created in 2014 with the goal of encouraging and supporting developers to build affordable homes. Making it mandatory for developers to include a specific number of affordably-priced housing units in their projects.
A Down Payment Is Just One Part Of Your Financing!
Remember that a down payment is a vital part of your home-buying finances, but it’s just one part of your financial journey in buying a new home.
Legal fees, stamp duty, home loan rates, and even furnishing your new home are all considerations you should factor into your budgeting so you can make the right decision!
Disclaimer: The information is provided for general information only. PropertyGuru International (Malaysia) Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.