Down Payments: How They Work, How Much To Pay?
Any type of housing loan you get in Malaysia is going to require that you make a down payment. Now the down payment is important, because it’s usually what’s going to determine whether or not you’re able to get access to the home you want or what type of home you can get.
What you have to do is consider how banks in Malaysia are going to view the down payment size and decide which category you want to be put into:
- If a home buyer makes a minimal down payment, which is usually 10%, then this means that the overall cost of the home they get has to be tightly controlled. A 10% minimum down payment means the bank would have to finance the other 90% of the purchase price for the home. The risk profile of the borrower is going to be important in this case. The 10% minimum payment would look best if being used for a home that’s well within the borrower’s income range.
- If a borrower is able to pay 20% on a down payment for a home, then this shows that the borrower probably had significant savings in the bank to help build to this amount. If not this, then they were able to utilize other resources in order to have a higher amount to put down. This shows that a potential borrower is highly financially responsible and would serve as a good risk to the bank. The overall cost of the loan they get would be less due to this.
- If a potential borrower is able to pay more than 20% as a down payment on a home, then chances are they have either a really high income that’s stable or they’ve found a house that’s priced lower than what they can afford if they wanted to. This shows a bank that a borrower has taken the time to consider future risk and is effectively trying to hedge for it. It also shows that they are serious about owning their home outright in a faster period of time.
So what’s the minimum down payment a borrower should make towards a home?
It’s all going to come down to whether or not you’re a first time buyer or not. If you’re not a first time buyer, then it’s safe to say that paying the minimum 10% wouldn’t be too bad of an option for you. The reason why is because if you’re not a first time home buyer, then you’ve already had the chance to build up some equity with the bank. You’ve lowered your risk profile and therefore have a good track record. You can leverage this and wouldn’t have to make a bigger down payment then this unless you wanted to.
If it is your first time purchasing a home, then you’ll want to show a bank in Malaysia that you’re serious and committed. The bank is taking a risk on you and you want to show them that you’re all in. For these instances it would be best to make a 20% minimum down payment. Now some banks in Malaysia might actually require this for first time buyer’s while others will not. In any case, the ability to pay more comes down to you being good at getting a home that’s well within the range of affordability for you.
For instance, if you know you can afford a certain amount overall, then consider getting a house for even less so that your initial down payment can be more. If you are set on getting a certain house, then take measures to try to negotiate the price down as low as you can get it.