How Much Should Malaysians Earn to Afford a House in 2020?
Buying a house is a process every working adult will go through. It is probably the largest financial milestone in our lives. If you are already planning to buy a house, you probably have already had this question in your head: how much should I earn to afford a house? First thing first, you need to know that your salary and commitments play the main role in your loan entitlement.
Next, surely you will be needing bank loans to purchase a home. Banks and loan officers can be very strict when it comes to approving your loan. The first thing they will look at is your Debt Service Ratio (DSR).
So what is DSR?
DSR is a formula used by banks in Malaysia to calculate if you can afford the loan you are applying for based on your monthly salary and the debts you pay each month like ptptn loans, car loans etc. With this formula they can know if the property you are eyeing for is within your financial affordability. For safety precautions, what if you are not able to pay your monthly instalment on time right?
So how do you calculate your Debt Service Ratio? Here is an example of how you should calculate :
(Total commitments + the loan you are applying for / Net income) x 100 = should be in the range of 60% – 70%
Do not get confused yet! To give you a clearer picture, say your net income is RM4,000 a month.
The minimum Debt Service Ratio is RM4,000 x 70% = RM2,800. This means that your commitments should be within RM2,800.
Let’s say you have the following commitments :
- PTPTN loan : RM150
- Car loan : RM400
- Credit card repayments : RM300
Your total debt amount is RM850. As a result, when you take up a home loan, your monthly installment should not be more than RM1,950 (RM2,800 – RM850)
In other words, the minimum requirement based on your net income, let’s say your aspire home loan installment is RM1,500 a month.
Commitments : RM850 + RM1,850 = RM2,700
Net income : RM4,000
RM2,700/RM4,000 x 100 = 67.5% (Debt Service Ratio)
In this case, the bank will most probably approve your loan.
HOWEVER, some banks have their minimum entry gross salary. Even though you have the ideal 60% – 70% Debt Service Ratio, but your monthly income is not up to their minimum required income, there is a big possibility you will not get approved.
All in all, you should definitely get your facts and calculations right before purchasing a home. If you are prepared to purchase a home, contact us today and we will guide you from there!