4 reasons why we should not overstretch our property debts

Just because you can afford a huge home purchase, doesn’t always mean that you should.

Debt-free

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Being able to afford something does not always mean that we should go all out and purchase it – especially when we’re talking about a big commitment, like buying a property. Sometimes, we find a good deal and we set our minds on it, thinking that it is the best deal out there. But is it really?

A conversation between two friends discussing the matter of home loan approval ended with the statement that, “With an increment in your salary, your home loan application is more likely to be approved for 85-90%, so why not get it?” The property in question was a double-storey terrace sub-sale property priced at RM550,000. A discount was given and the stamp duty fees for Memorandum of Transfer (MOT) are waived too. The prospective buyer was advised to take up a loan and purchase the property for as much as her salary could afford – the reason given is that this opportunity may not come again.

“May not come again…” may not be totally true. Here are 4 reasons why we should NOT need to overstretch our finances when buying a home.

#1 There are still plenty of choices out there

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If we need a place which is 15km from KL city centre (KLCC for example), the never-ending choices range from Jinjang to Mont Kiara, Sentul to Batu Caves, Wangsa Maju to Cheras all the way to Damansara Uptown and so forth… If we are looking at townships (whether newer or older), the choices are now aplenty – from Rawang all the way to Semenyih and Nilai or even Banting.

Let’s face it, we only need to spend a little more time to search, and not just settle for the first ‘perfect’ deal we come across. Not only do we have the luxury of choice, but also the online tools to make our search quicker and easier.

#2 Don’t mistake affordability as the ‘green light’ to buy

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Although RM550,000 seems relatively affordable, it is not a small amount. With a 90% loan, the loan repayment per month is over RM2,500. Assuming that we spend 30% of our salary on this, the buyer/household should have an income of RM7,500 per month, at least. It’s not uncommon for people to turn into mortgage slaves, especially when their home repayment takes up 50-70% of their monthly income.

One should consider the possible situation of losing their main source of income, would there be enough savings left? Would they be able to stretch their savings sufficiently during the months of unemployment to service their repayment as well as to cover other financial obligations?

MORE: Who do we blame when our home loan gets rejected?

#3 It may not be the best home in the long run

home-renovation

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The ‘best home’ status of any new purchase is only for the moment. As our income continues to grow, sooner or later we will be earning RM10,000 or higher. By then, would this home still be the ‘best’? Of course not!

We may already want a bigger and better home to support a growing family or perhaps to match our new lifestyle. There’s also the possibility of falling in love with a new township or moving outstation due to work/family situations. Come what may, always take the future into consideration when making a home buying decision.

#4 Save it for the right moment

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Cash is king. Frankly speaking, the best opportunities come during a slowdown and these opportunities will only be open to those with cash to spare. If we were to have invested all we have into one home (highest price we could afford), and are using up most of our monthly salary for repayments, bills, and necessities –  there wouldn’t be any (or enough) extra cash for that sudden opportunity. In the business world, even the best companies keep reserves because they know that they may need it sometime in the future. Not many bluechip companies invest everything they have into their business just because they could afford it at that particular moment.

There are many more reasons not to rush in and overstretch your finances, but hopefully the above gave you a clearer insight into the advice given. Even Malaysia is defined as a developing nation because nothing is considered to be at the peak or fully mature yet. However, urbanization is constantly in progress and Greater Kuala Lumpur is growing ever larger instead of remaining stagnant.

Keep researching, keep saving and keep investing. That’s the best advice we should always keep in mind.

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