Buying your dream home is a thrilling experience but, there are property jargons that might leave many first-time homebuyers scratching their heads.
When shopping for your first home, there are terms that might not be familiar to you. At iProperty.com.my, our jargon buster will help shed light on some terms and phrases. Here’s our quick and simple guide to some of the jargons that you might come across when house hunting.
A home deposit is the initial 10% down payment from the total purchase price of a property. This payment signals your commitment to completing the purchase. For example, if you are targeting to buy a property for approximately RM 600, 000, you need to pay a minimum RM 60, 000 down payment or deposit.
2. Price per square feet (psf)
Properties are usually measured in square feet. Thus, the value of a property is measured based on the price of each square foot. Property hunters can use psf to make comparisons between differently priced homes or sizes.
A mortgage is a loan from banks that help you purchase a property. Many banks offer home loans of up to 90% of the property’s purchase price but they may vary according to your financial credibility. There are several mortgage options to choose from such as fixed loan, semi-flexi loan and full-flexi loan.
4. Credit score
Your credit score represents how likely you are to pay a debt. Banks and financial institutions use this as an indicator to decide whether you are eligible for a loan, at what interest rate and credit limit. Each bank has different methods for evaluating your credit score, so your chances of getting loan approval might vary as well.
5. Debt to service ratio (DSR)
DSR is the ratio of total debt to household income. Banks use DSR to indicate how much of your income is being used to pay off debt or meet financial commitments. If you wish to own a home, your DSR usually must not exceed 70% of your total commitment, but it may vary among banks. The formula for DSR is DSR= Debt/ Net income x 100%.
6. Sales and purchase agreement (SPA)
SPA is a written contract that represents the seller and buyer in a real estate transaction. It contains all the agreed terms and conditions that bind both parties during the transaction. This is done in the presence of a lawyer who will explain the terms of the contract to you. Before signing the SPA, make sure that you read and understand all the terms in the document as you are bound to it upon signing.
7. Stamp duty
Stamp duty is a tax applied on legal documents such as loan agreement, sale, transfer, and other real estate transactions. This includes the stamp duty for the SPA of your property and Memorandum of Transfer (MOT). The stamp duty fee is charged depending on the price tier. Find out more about the latest stamp duty charges here.
8. Valuation fees
It is a fee charged by the bank to determine the value of a property that you are looking to buy. This exercise is carried out by a qualified surveyor and is a requirement by the banks before approving your housing loan. The valuation fee is calculated based on a percentage of the purchase price. For example, 0.25% for the first RM 100, 000 and 0.2% for next residue up to RM 2 mil.
9. Legal fees
You will need to appoint a lawyer for legal assistance during the purchase of a property. The lawyer will prepare all the necessary agreements and documents to facilitate the transfer of the property. The legal fees vary from 0.25% to 1% depending on the value of the property and are calculated as a percentage of the purchase price.
10. MRTA and MLTA
These are the types of insurance that most banks will require home buyers to purchase as part of the housing loan package. This is to protect the value of the property. The Mortgage Reducing Term Assurance (MRTA) costs are dependent on the age of the borrower and the total mortgage on the property. On the other hand, Mortgage Level Term Assurance (MLTA) offers repayment of your outstanding mortgage and guaranteed cash value back at the end of the scheme. Read more about mortgage life insurance here.
Leasehold tenures are usually for 30, 60, 99 or in certain cases, 999 years. The land is leased or rented from the government. This also means the house owner needs to renew the lease before the tenure ends and this requires a premium, depending on the property type. Transfer of ownership may take a long time as leasehold property usually has a lot of restrictions.
The land tenure for freehold property is indefinite to an individual. The land’s ownership is in the form of a master title. This means the owners would have fewer limitations if they want to transfer the property to someone else.
Find out more about Freehold, leasehold and Bumi Lot: Learn the differences and limitations here.
13. Strata title
The strata title is usually issued for high-rise properties like condominiums, serviced residences, apartments, and flats. A typical feature of strata properties (landed or high-rise) is common facilities that are shared by all residents such as swimming pools.
14. Residential overhang
These are properties that are remained unsold after nine months of receiving the Certificate of Completion (CCC) and Temporary Certificate of Fitness for Occupation (CFO).
Now that you have been familiarised to some of the important terms related to property buying, you will no longer have your head spun when estate agents start throwing around jargon and complicated words throughout the property buying process. You can always refer to our jargon buster whenever you need it. In the meantime, we will keep the list updated with more terms and definitions.
Also, use our Home Loan Eligibility Indicator, LoanCare to increase your chances of getting a home loan approval from up to 17 banks. Good luck with the house hunting!