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4 ways to fund the down payment of your property
Home buyers in Malaysia are generally required to put down a 10% down payment for the purchase of a property, with a home loan covering the remaining 90% of the purchase price.
Typically, this 10% down payment is broken down into a non-refundable 2% or 3% earnest deposit, which is paid alongside a letter of offer or “offer to purchase” form that secures the property and shows the buyer’s commitment. The remaining 7-8% is then payable upon signing the sales and purchase agreement (SPA).
Buyers who wish to pay more than 10% towards a property’s down payment to reduce monthly repayments are free to do so, although loan tenures of up to 35 years and low interest rates mean most first home buyers find these amounts manageable.
In truth, the 10% down payment is often the biggest hurdle for those keen on their first home. For instance, a property worth RM500,000 would require a down payment of RM50,000.
Thankfully, there are several financing schemes or means of payment available to assist home buyers.
1. Skim Rumah Pertamaku
Also known as the MyFirst Home Scheme, this financing plan assists young Malaysian home buyers to secure up to 110% financing for their first property. It is open to those who meet the eligibility criteria for new or subsale residential properties priced below RM500,000.
The scheme allows a maximum loan term of 35 years, subject to the applicant’s age not exceeding 70 years at the end of the term. Applicants must earn below RM5,000.
The restrictions, however, are higher for those who wish to secure financing beyond 100% of the property price, as the applicant’s household income must be equal or below RM5,000 and the property purchase price must not exceed RM300,000.
The property purchased must also be owner-occupied, and buyers are not allowed to resell the property for the first five years.
2. MyDeposit scheme
The MyDeposit scheme, or First Home Deposit Funding Scheme, is a one-off contribution to down payments of up to 10% of the property price.
Introduced in 2016 by the housing ministry, the scheme only provides a maximum payment of RM30,000. At this time it is not available, although the government announced in December that it is considering its reintroduction.
3. LPPSA loan
Lembaga Pembiayaan Perumahan Sektor Awam is a statutory body tasked with providing housing loans for civil servants and those in the public sector.
A LPPSA loan allows eligible government employees to apply for a full loan and enjoy longer tenures compared with conventional housing loans.
For a first home loan, repayments should not exceed 60% of one’s salary and fixed allowance; while for a second loan, repayments should not exceed 50% of one’s salary and allowance.
Debt commitments must not exceed 80% of net income.
4. EPF Account 2
The Employees Provident Fund has long allowed the withdrawal from Account 2 to finance the purchase of a property.
Account 2 funds can be withdrawn to buy or build a first home, and withdrawal is also available for a second home provided the first home has been sold or disposed of.
Applicants may alternatively use the funds to reduce or redeem the loan for their first or second house. Below is the eligible withdrawal amount:
Since supporting documents are needed to show the purchase of a property, buyers would have to at least pay the earnest deposit beforehand to claim funds from Account 2.