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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?
What is a down payment?
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% down payment on a property purchase. That means if a house costs RM400,000, you will be required to pay at least RM40,000 in upfront deposit.
The remaining amount can be paid using a home loan or other similar loan.
Is a down payment amount fixed?
The minimum downpayment amount on a property purchase is 10% of the transaction price. It isn't possible to pay a downpayment less than that figure.
We talk about ‘minimum’ rates when it comes to a downpayment because there is no specified upper limit.
Some homebuyers choose to pay more upfront in order to reduce their overall home loan, and thus reduce their monthly payment amount and total home loan repayment schedule.
What is an earnest deposit?
The first part of a downpayment is usually paid as part of an earnest deposit. In most cases, that’s a non-refundable 2% payment to show you are ‘earnest’ 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 direct to an individual.
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 Sales and Purchase Agreement (SPA).
Once that SPA is confirmed, the full downpayment must be made. The total value of the downpayment 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.
Down payment assistance
Saving for the downpayment is often one of the most challenging parts of buying a home, particularly for first-time buyers.
But there are a number of downpayment assistance schemes available to help with that:
1) MyDeposit
The MyDeposit scheme, or First Home Deposit Funding Scheme, provides a one-off contribution to downpayments of up to 10% of the sale price, with a maximum payment of RM30,000.
Applications are closed at the time of this writing, but may open again in the future.
2) Fund for Affordable Homes
Bank Negara’s newly launched Fund for Affordable Homes aims to support low-income groups take a step onto the housing ladder.
This RM1 billion fund includes downpayment support alongside concessionary rates for loans.
3) My First Home Scheme (Skim Rumah Pertamaku)
My First Home Scheme is administered by Bank Negara, and is designed to assist eligible young adults below the age of 35 to buy their first home without paying a deposit.
Read more about the My First Home Scheme/Skim Rumah Pertamaku here!
4) BSN Youth Housing Scheme
The government-supported BSN Youth Housing Scheme is designed to help first-time buyers between 21 and 45 years of age finance the purchase of completed or under-construction sub-sale properties.
5) Rumah Selangorku 2.0 (Selangor Only)
A newly launched version of Selangor’s affordable housing scheme, Rumah Selangorku, is set to include downpayment support for purchasers of affordable homes within the state.
A down payment is just ONE part of your financing!
Remember that a downpayment 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, even furnishing your new home are all considerations you should factor into your decision.
Purchasing a property is an important commitment, which is why we work hard to guide and support you along that journey. So, before you actually make a decision, why not check out the 10 Factors That Impact Property Value You Probably Didn't Know!