As topic, the house worth RM200k and if I want to pay instalment through bank loan, what is my minimum financial status in terms of :
1. monthly salary
2. minimum down payment
3. other payment (lawyer fee, stamp duty ... etc)
4. maximum loan duration
5. guarantor ?

Thanks.

This post has been edited by work_tgr: Jan 5 2009, 07:22 PM

Hi,

I'm going to give u some insider views from the banker's point of view. Please do not take the comments below at face value.

Most people think that it's the 1/3 rule of a thumb. To a certain extent, it's not entirely true.

If u take a 200,000 loan stretched over 30 years - your loan repayment is approx RM 1,200. As such, using the 1/3 rule, you should earn approx RM 4,000 per month. This is being VERY VERY VERY PRUDENT. If you want to be safe - just take your min qualification as 4,000.

However, before your income is even taken into consideration - your loan application is "scored" via a statistical scorecard. Local banks are mobilizing their scorecards in line with Basel 2. For most foreign banks -their scoring is divided into:

(a) Demographic Score

(b) Bureau Score.

Demographic Score takes into account your age, occupation, gender, etc - the concept is similar to Insurance companies that take some of these factors to determine your premium computation. Unfortunately, we are not all created equal. E.g. a 30 year old white collar female would most likely score higher than a 40 year old blue collar male.

Bureau Score takes into account your repayment conduct. Banks use this scorecard as a weighted measure of your CCRIS conduct, how much vintage and loan facilities you have in your CCRIS, whether u have any special attention accounts / AKPK loans, your Margin of Financing, etc etc. Some banks also measure the quality of the collateral (the property) into this scorecard.

Both of your Bureau and Demographic Score must exceed the bank's cut-off score. The moment that happens, then only will banks normally calculate your debt burden or loan repayment ratio.

Let me give u an example to dispel my critics that advocate the 1/3 rule. If your score is fantastic - some banks are even willing to approve loan repayment ratios above 80%.

For example, if Mr. X earns 10,000 - and has fantastic scores, and can substantiate rental income from his properties - his loan repayment can even be 8,000. I've seen cases where the LRR is even more than 100%.

In summary:

1. To be prudent in your analysis - just believe in the 1/3 rule.

2. If you're a savvy in terms of financing, and you know your banker very well - the 1/3 rule is just a guide. It can go way way higher.

Please do not take my comments above at face value and be gung ho. Always clarify with your banker first....A good banker doesn't mind giving u candid & honest feedback.

This post has been edited by Phoeni_142: Jan 5 2009, 08:52 PM

What Pheoni said is very true, the 1/3 rule is a general rule but there are other considerations to consider when the banks check your credit profit. Anyway as a guide your monthly salary should min. 3x your monthly repayment.

Other things taken into consideration are your liabilities eg. how many credit cards you owe, any other loans eg car loan. Besides this the property is also taken into consideration. Generally landed properties are favoured more than condos and the location of the property is also important. For example if you choose a property that is in the landslide prone Bukit Antarabangsa, then most likely the loan will be rejected eventhough you may have a good credit profile.

What property are you looking to purchase and where is it?

This post has been edited by DannyOP: Jan 5 2009, 08:49 PM

Thanks for your explain. Honestly, I don't understand mostly the terms you used.
However, I am surprised with that 1/3 rule as that will be a great burden based on my current monthly income.
WOW! I couldn't imagine how much money for those tycoons have to pay with RM 1 million house.
6k per month ?

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Added on January 5, 2009, 10:25 pmSarawak area. I finally realize how hard it is to buy a house now.

This post has been edited by work_tgr: Jan 5 2009, 10:25 PM

actually the 1/3 rule is very common for properties and car loans. You have to look at both sides. On the banks, they have to ascertain that whoever they give the loans out to those who is able to pay for it. On the purchaser, anything more than 1/3 will not be practical because most of your earnings will be paid to loans and nothing much left for your living expenses or savings. Remember all your loans and credit are considered as liabilities until you have fully paid for it. The house and the car that you get is owned by the bank, not you, until it is fully settled.

This post has been edited by DannyOP: Jan 5 2009, 10:54 PM

Hi,

Maybe, we can learn from each other. I admit that i'm also learning everyday

1. Are there some problems u are facing whilst buying the house? If I can't help, I'm sure some of the other guys in the forum can.

2. Like what Danny and I both mentioned, the 1/3 rule is only a guideline. Please do not be discouraged. A smart banker would be able to gauge your credit and demographic score. Furthermore, he would ask for supporting documents to strengthen your case. E.g. A person could have a relatively low income, but could own other investments like shares, FD's. etc etc.

This post has been edited by Phoeni_142: Jan 5 2009, 11:05 PM

All,

1) 1/3 rule is a good place to start.

2) In fact, given how POORLY most people manage their finance, they should be EVEN more prudent.

3) Remember, the bank is NOT your friend. They can STILL make money from you even if you CANNOT pay the loan. In many cases, they make MORE MONEY if you CANNOT pay the loan. They got your house in the process.

4) If you CANNOT afford something, do not buy it. Or, you will not be keeping it for long.


How much is your student loan and car loan payment per month?? Those should be included into the 1/3 too. Then, we have down payment and you need at least 10K to move in for curtain and basic furniture and so on.

So, either you earn more or do not buy car and house at the same time. Pay off the car before you buy the house. Or, do not buy a 200K house. You CANNOT afford it.

Dreamer

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Added on January 5, 2009, 11:15 pmPhoeni_142,

How about the BASIC fact that he CANNOT afford a 200K house to begin with??

Dreamer

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Added on January 5, 2009, 11:17 pmwork_tgr,

You will get to see how many of them are REAL TYCOONS during recession. Many will be forced out of their houses...

Dreamer

This post has been edited by dreamer101: Jan 5 2009, 11:17 PM

Yup, if dreamer101 can't AFFORD a 200K HOUSE, what makes you think you are BETTER than HIM? you CANNOT afford it. He has SPOKEN.

Hi Dreamer,

Hmnnn, I'm just a person fighting from the masses. I used to be in banking doing credit policy, decisioning and sales. I've moved on from banking since then, and it's not in my interests to promote any housing loan package

Whether or not he can afford the 200K loan and whether the bank approves his loan are 2 separate issues please. Please be objective. We were having a discussion on the subject of credit worthniness, not on his personal decision to service a 200K loan.

Besides - he did not even disclose his income, and I was offering a generic opinion.

If he feels that he can't afford to repay the loan - obviously he wouldn't even sign the LO.

Don't quite get you. Just to manage your expectations, I'm okay to discuss in a civil manner. Hope you don't get overly defensive here.

As a guide for real estate agent...u r advise to have basically

1) 1/3 rule [(installment+other commitment)x3] monthly income

2) 10% down payment for the property

3) S&P Legal Lawyer fees << honestly price is diffrent within each solicitor
(Mostly developer has his own lawyer so the lawyer charges is free)

4)loan duration depend on ur ages, nowaday bank can loan up to 65years old, and the longest for 30years
(65 - ur ages @ <30)

5) If ur financial status is not qualified to loan 90% of the property's value u would need a guarantor who his/her financial statement is qualified

Anyway other advise who given by Phoeni_142, DannyOP n dreamer101 are right and need to consider!
To buy a 200k property u should atleast have (Rm939+ur commitment)x3 monthly income, 20k down payment , around 2k for lawyer and stamp duty fees ... Good luck for ur purchasing

This post has been edited by Shinja: Jan 6 2009, 05:28 AM

Phoeni_142,

<<Please do not be discouraged.>>

If SOMEONE does not qualify the 200K loan under the 1/3 rule, how LIKELY for a person to afford the house??

So, where does the

<<Please do not be discouraged.>>

come from??

That is a HUGE RED FLAG!!!

Now, whether the bank approve the loan or not is IRRELEVANT, the person has to THINK very carefully whether he CAN afford the house.

We ALL want everything NOW. But, we NEED to THINK whether we can afford it. How does ENCOURAGING someone to take a 200K loan over the 1/3 rule helps a person??

Affordability come first. Without that, a person will be in DEBT HELL and will LIKELY lose the house in the future.

Dreamer

Hi Dreamer,

No disrespect intended, but I really think that you shouldn't be so sweeping in your views.

"They make more money if you cannot pay the loan?" - wow.....If I'm a bank i'll certainly hope and pray that all my borrowers grow delinquent. On a separate note, does that mean that the American banks are making a killing due to the subprime fiasco?

I'm just an uncle who was blessed enough to retire early due to managing my small portfolio of properties. You’re probably a guys in your late twenties or early thirty’s. Then again, perhaps I don't know as much as you.... You’re the best!

I don't know about you - but I count a few bankers as my close confidants. They are my business partners. I would hope that you are matured enough to build long lasting relationships with some of them. Not all bankers are blood sucking, profit hungry imbeciles, you know.

Having said that, I do agree with you that a borrower should be matured enough to manage his / her own finances. They have to be their own judge in terms of their own repayment capacity. However, just because a borrower breaches the 1/3 threshold, it doesn't mean that he / she is drowning. There are many, many, many, many, many ways to compensate for this........I won't bother elaborating here.

What is so wrong with him talking to his lender about his options? You are making a lot of assumptions. By the way, I took my first loan when I was 21 – for a property that cost 176,000 – and I’m pretty sure my salary was quite pathetic then. So, stop being so melodramatic about yelling red flags when you do not even have an iota of credit knowledge. Then again, maybe you’re an expert Okay, I’m a dumb dumb.

If you only have myopic thinking and are not willing to think out of the box, I guess that’s why you’re so bitter on the issue of financing. Maybe because you don’t know how to tackle it or structure your debt? Only know how to listen to bankers at face value only? Don't know how to manipulate the financing terms and structure?

Shan’t pursue this endless tirade of footsy with you. You are still missing the point. The issue is about creditworthiness. Please do not belittle or discourage others. You are tackling him as an individual, whilst I was tackling it as an issue. You can go ahead and post replies. I’ll do you a favour and ignore you because I don’t think it’s a civic and rational debate anymore.

take care and good day!

This post has been edited by Phoeni_142: Jan 6 2009, 09:46 AM

yup i agree with phoeni_142... many people talk as if they know everything but there is a lot to learn and not everything is the same as what they believe.. Im sure u can afford a 200k house without needing to earn 4k+ altho 4k+ is a safe figure to get a 200k house.. the downpayment u pay also plays a role in the loan u can take...if u pay higher downpayment hence u loan less and can afford a 200k house... 200k house doesnt mean u need to loan 200k.. just sharing my opinion..

Phoeni_142,

<<I do agree with you that a borrower should be matured enough to manage his / her own finances.>>

Let me ask you a SIMPLE question. Base on all the information posted by the TS and the kind of questions asked by the TS, what can you say about the maturity of the TS in managing his/her finance??

Now, if you are NOT SURE about his / her MATURITY, would it be SAFER to ask the TS to proceed CAUTIOUSLY??

<< However, just because a borrower breaches the 1/3 threshold, it doesn't mean that he / she is drowning. There are many, many, many, many, many ways to compensate for this........I won't bother elaborating here. >>

You are OLD enough to know that MOST people do not know that. So, why do you ASSUME that TS know this??

And, all those methods required certain level of maturity, how do you know TS has it??

You DO NOT KNOW. Me too.

Now, if YOU and ME DO NOT KNOW what is the maturity of the TS, is it a BETTER ADVICE to tell

A) Proceed cautiously. make sure that you can afford the house before check on more loans.

B) Talk to bankers on how to break the 1/3 rule and buy the house.

I MAY or MAY NOT KNOW as much as bank loan as you do. But, I am interested in making sure that people make the BEST DECISION. Aka, consider all angles before making a HUGE commitment.

Dreamer

This post has been edited by dreamer101: Jan 6 2009, 10:35 AM

Hi Dreamer,

Sigh - could not resist but to reply you.

Now, you're battling semantics with me. You're picking on my exact words, and twisting it out of context.

In the interest of civic debate, let me reply to you as politely as I can.

It is good of you to have his interests at heart. It is also good of you to advise people to thread cautiously. But, I also can pick on your words. Your words give me the impression that he should just "abandon mission" and forget the whole idea.

Let's just say u get my point. I get yours. And let's move forward.

Deal?

Aiyah - all the time argue.....can be very tiring to type. Better to talk other things. By the way, I never take things personally....I only speak frankly, and I'm sure the same applies to you as well.

So, what properties do you invest in? Notice any interesting areas that are active in the secondary market lately?

ok ok ... don't flame. You both have good POV. I really appreciate it.
No wonder people say without monthly salary of RM4k per month, don't consider to buy a house. That's quite true.

My monthly income is about RM2.5k only and have my car loan in the progress of approval. I definitely need more income in order to have my own house and that "motivates" me to marry a girl (properly a teacher) with salary at least RM2k. *hahaha* or working harder for the purpose of being promoted or find part time jobs or learn to invest.

*taking times to read through Phoeni_142 & dreamer 101 posts* --> complete reading and my conclusion is "my English is severely needed to be improved"

This post has been edited by work_tgr: Jan 6 2009, 11:28 AM

Phoeni_142,

I do not invest on property. I do asset allocation.

http://www.investopedia.com/terms/a/assetallocation.asp

I invest on stocks, bonds, REIT all over the world.

I am NOT smart enough to invest on properties and I do not have the TIME to do that either.

Dreamer

200k house is just a flat or cheap apartment...cant really get any house with 200k in penang nowadays...all cost around 350k and above... and ppl in pg still earning peanuts so i think its affordable for 200k house with salary lesss 4k..maybe 3k+

Btw, it took me 4-5 years into my career before I can say I'm comfortable with my earnings to get a house (note the word house, not investment property). Even though it's base don individual income earned; the decision is made also because considering the support from my wife's earning. And the loan is only around RM230k.

Have always thought of changing away my car which I bought for RM25k. But the thought of down payment and repayment also put me off.

I quote cherroy:
1/3 is the rule one should always keep in mind no matter how the bank sees it. That's quite a fundamental. And the things to consider is not only on monthly loan repayment. It's also, down payment - or better, lump it under "acquisition cost" which also would eventually include renovations and furnitures. Also the "maintenance cost" after acquiring the house besides paying the monthly installment.

Once you have a car, good luck in trying to save money for marriage or DP for a house. Personally think thats the biggest mistake a freshie could make.