How much home loan can I get from my salary in Malaysia?

Buying a house in Malaysia usually means getting a housing loan from a bank to finance your property. But many people don’t have an idea of how much home loan they can borrow based on their income. To get an idea of just how much the banks will fund you for your property purchase, check out this article.

This article will talk about the overall median income in Malaysia, or simply put the typical take-home pay of a rakyat or an average individual. It will also discuss the different median incomes in different states and Federal Territories in the Southeast Asian nation, as well as the corresponding loanable amounts. Additionally, this article will address the debt service ratio (DSR), other costs of homeownership, and the different housing loans available in Malaysia.

Median income in different Malaysian states and home loanable amounts

According to the latest government data, 2020 Salaries & Wages Survey Report by the Department of Statistics Malaysia (DOSM), the median income of a typical Malaysian stands at RM2,062 per month or RM24,744 per annum.

Assuming a home loan tenure of 35 years, an interest rate of 3 percent, an existing monthly debt obligation of RM200 and maximum percentage of gross income to be spent on repaying a mortgage is about 30 percent. Hence, a typical Malaysian (individual borrower) can loan up RM160,842 and his monthly loan repayments cannot exceed RM619. This is based on in-house calculations.

Notably, financial experts recommend that not more than one-third of your gross income should be used in paying for your housing loan per month. This is to ensure you can comfortably repay your housing loan and there’s enough money left for essentials and for emergencies.

However, borrowing as an individual person means having a lower buying power and fewer real estate choices. On the other hand, spouses and joint borrowers who are both earning a living have greater buying power and can afford a more expensive residential property.

To illustrate, a couple each of whom has a median income can borrow up to RM322,684, but their monthly loan instalments cannot exceed RM1,238. This is based on the same assumption above, except the existing monthly debt obligation is higher by two-fold at RM400.

Kindly take note that the median income of RM2,062 per month or RM24,744 per annum is for the overall country. As such, there are states and federal territories with a higher or lower median income as compared to Malaysia’s overall median income.

Based on the latest Salaries & Wages Survey Report, the three places in Malaysia with the highest median incomes are the Federal Territory of Putrajaya (RM3,717), Federal Territory of Kuala Lumpur (RM3,037), and the state of Selangor (RM2,725), where an individual median income earner can afford a house costing between RM212,550 and RM289,723.

Conversely, the places with the lowest median income in the country are Kelantan (RM87,567), Kedah (RM101,338), and Terengganu (RM105,496). As a result, an individual median income earner in these states can only afford residential properties priced from RM87,567 to RM105,496. The assumptions are the same as the above, with an existing monthly debt obligation of RM200.

If there are two borrowers each with a median salary (e.g. husband and wife), even those living in the three states with a lower median income can be able to purchase a better home priced between RM175,134 and RM210,992. Similarly, those living in the wealthier states and Federal Territories can afford a residential property costing about half a million ringgit.

Debt service ratio and iProperty LoanCare

The goal of the above figures is to give you an idea of your maximum loanable amount and monthly instalment. However, the actual figures vary per borrower, as each bank has different policies on calculating how much they can lend to a would-be home buyer. Banks also make use of mathematical tools to determine the amount they should lend.

In Malaysia, one of the mathematical tools utilised by banks is the Debt Service Ratio (DSR), which is used to compute whether you can repay the mortgage you’re applying for and how much you can afford to pay for your monthly housing loan instalments.

Usually, the formula for DSR is your monthly net income divided by your overall monthly debt obligations, including the monthly instalment for the housing loan you’re applying for. Thereafter, multiply the figure by 100 to convert it into a percentage.

DSR = Debt/Net Income X 100

Note that your total monthly debt obligations include all bank and non-bank debt. Examples of bank debt are credit card bills, personal loans, and car loans, while non-bank debt comprises monthly repayments such as Malaysia’s student loans (PTPTN). Also note that instead of gross income the bank uses your net income, which takes into account all statutory deductions such as taxes, Zakat, EPF, and SOCSO.

CHECK OUT: How to use EPF Account 2 money to buy a house?

If you’re confused, here’s a sample DSR calculation. Let’s say, your net income is RM4,000 a month and your overall monthly debt obligations stand at RM1,400 and you’re applying for a mortgage that has a monthly repayment of RM1,000.

RM1,400 + RM1,000 = RM2,400, now divide that figure by RM4,000 and you’ll end up with 0.6. Multiply that by 100 and your DSR is 60 percent, which is relatively high.

Your DSR is then benchmarked against the bank’s allowable DSR limit. If your rate doesn’t surpass the bank’s maximum percentage, you’ve overtaken one hurdle in getting your housing loan application approved.

Keep in mind that each bank has different DSR requirements. While some may have a low maximum like 50 or 60 percent, some could accept as high as 80 percent. The DSR cap also depends on the would-be borrower’s profile or your level of net income, with less affluent households having a lower DSR limit, while wealthy individuals could have higher DSR limits of between 80 to 100 percent.

But if you’re struggling to determine your DSR, in addition to knowing the maximum loan amount, we suggest trying out iProperty’s LoanCare, a free-to-use tool that increases the odds of getting your mortgage approved, on top of featuring a debt service ratio calculator.

iProperty’s LoanCare is easy to use. Just input your financial information and know your chances of getting a bank to say yes to your housing loan application, and compare your options with up to 17 lenders.

Aside from home loans, what are the other costs of homeownership?

If you intend to maximise the home loan amount you can get, know that it isn’t advisable because aside from the monthly mortgage instalments, there are still some other expenses you need to pay to safeguard your home and keep it in a liveable condition. These include:

Upkeep. Buying a property in Malaysia can be expensive, likewise for maintaining and fixing the home you bought. Based on the latest Household Expenditure Survey Report, 4.4 percent of the monthly expenditure by Malaysians is utilised for maintenance, as well as buying furnishings and household equipment.

Utilities. On average, it is said that a Malaysian family of three spends RM100 to RM120 per month on electricity, RM100 to RM200 on internet connection, and RM20 to RM30 on water. If you have a larger household and have more appliances, your utility expenses would be higher.

Insurance. One excellent way to protect your investment from unpredictable accidents or natural calamities, like fire, typhoons, flooding and earthquake is to take up insurance. However, insurance can be pricey and your monthly premium will depend on the number of covered risks, the value of your belongings, as well as the price of your residential property.

READ: Types of home insurance policies in Malaysia

Local property tax. Buying a house in Malaysia means you need to pay an assessment tax, which is usually 4.0 percent of the annual rental value of your residential property. If you live in a landed home, you will need to pay a quit rent, while those who reside in a strata-titled development need to shoulder parcel rent. Both quit rent and parcel rent depend on the size of your property.

Management fees. If you reside in a strata-titled residential development, such as a condominium, you need to pay management fees per month. Your rates will depend on the location of your unit and how big it is. The fees collected are used by the Management Corporation Strata Title (MCST) to maintain shared facilities, such as lifts, gardens, parking spaces, and swimming pools.

Fees to Homeowners’ Association (HOA). If you reside in an exclusive community, such as a gated or guarded residential development, you may need to pay fees to take care of facilities and amenities shared by all homeowners in the area.

Home loans that are available in Malaysia

Generally, there are four main types of home loans offered in the Southeast Asian country.

Fixed. These are housing loans whose interest rate doesn’t change throughout the lifetime of the loan. This is advisable for those who don’t want their monthly instalments to increase.

Floating. These are home loans whose interest rate can fall or increase depending on the benchmark the loan is pegged to. But with the US Federal Reserve hinting at further rate hikes in 2022, interest rates across the globe may rise further, possibly leading to higher monthly instalments.

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Hybrid. These are home loans that have a fixed interest rate for a certain time (e.g. 5-10 years), then later switch to a floating interest rate.

Islamic. These are Syariah-compliant loans that do away with interest rates. Basically, the buyer asks the lender to buy the home that they want financed, which is then sold to the buyer at an additional mark-up. Thereafter, the buyer is asked to pay for the house via instalments or through a “rent-to-own” scheme.

If you are looking for a suitable bank to which you intend to apply for a housing loan, know that there are many reputable financial institutions in Malaysia, both local and multinational. These include:

• Maybank
• Standard Chartered
• HSBC
• Public Bank
• Citibank
• UOB
• RHB
• AmBank
• Affin Bank
• CIMB
• Bank Rakyat
• Bank Simpanan Nasional (BSN)

Happy home loan hunting! But if you don’t want to face the daunting task of visiting and enquiring at each bank, try iProperty’s LoanCare, which will make your housing loan search super easy and hassle-free.

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