Are the property affordable for your salary range?

A lot of first time buyers and young adults could be confused that whether their salary could sustain the purchasing of a property in Penang. Some of them worry that the bank would not approve their application for loans while some overestimate their ability to pay the mortgage, which cause them to buy a property out of their affordability level and might lead to bankruptcy later on when they are not able to repay the mortgage on time.

You would not want this to happen as the bank might take back the house and you will lose the money and time you spent on that house.

In fact, there is a simple way for you to check whether you can afford the house or not.

First, list down all your monthly commitments now. (Car loans, Credit card debts, Student loans, Insurance payments, house loans.)

Assuming that you have a monthly salary of RM5000, times that amount by 70% ( 30% will be contributed as your daily allowance on foods,fuels,tols and others.)

RM5000 x 0.7 = RM 3500 are available for use

Checking back your commitments, if you have to pay say RM2500 every month for the student loans,credit cards, insurances or car loans.

Which means the leftover money would be RM3500 - RM2500 = RM1000 per month.

Gross estimation for 30years repayment mortgage would be :

100k of house require ~RM500 per month mortgage

200k house require ~RM1000 per month mortgage

300k house require ~RM1500 per month and so on.

Since you have RM1000 per month for leftover money, it means you can afford to buy a 200k house.

This is commonly the way that banks use to calculate the amount you can fork out each month for loan repayment. 

It is very risky for you to buy any property out of your affordability as it could tremendously affect your cash flows. Banks would also be more reluctant to approve your loan for that property as you have a higher chances of not being able to pay the mortgage on time.

Do the homework well and stay happy investing together!

W.