Before you start looking for a house to buy, perhaps the most important thing to determine is whether you can afford to buy one and How Much Salary To Buy A House?

Some background information about my life

I’ve always wanted to own a home since I was a child. But, because I was not born into a wealthy family, I understand how difficult it can be to obtain one. I know I’ll own a house one day, but it might take a little longer than other people.

So I went on to work for a bank, specifically in the Mortgage Loan Department. I learned everything from A to Z regarding home loan approval criteria, sales, and the disbursement process.

Power comes from knowledge.

I manage to buy a few houses before the age of 30 using the knowledge I gain in my twenties. As a result, I have always believed that knowledge is power.

I’m not asking you to join a bank, but rather to gain knowledge. Knowledge is everywhere, especially in today’s digital world.

How much money do you need to buy a house?

Salary and commitments are critical consideration factors for loan eligibility.

A debt service ratio is typically used by banks to determine how much money they should lend you. A good debt service ratio is between 60% and 70% of your salary.

The debt service ratio formula is as follows:

(All commitments / Net income ) x 100 = should be in the range of 60%-70%

For example

If your monthly net income is RM3000.

RM3000 x 70% = RM2100 is the ideal debt service ratio.

That is, your current commitment plus the new commitment should be less than RM2100.

Assume the house costs RM200,000. You will be given a loan of RM180,000.

The monthly payment for the house is RM864.00.

You already have one commitment, a personal loan with a monthly repayment of RM1000.

So the Debt service ratio for your loan is,

RM864 + RM1000 = RM1864.00 total commitments

RM3000 net salary

RM1864/RM3000 x 100 = 62.13% (Debt Service Ratio)

In this case, your loan will most likely be approved.

Guidelines for Exceptions

The debt service ratio formula appears to be straightforward, but there is another factor to consider when a bank grants a home loan.

As we all know, some banks may require a minimum entry gross salary of RM3k to RM5k in order to apply for a home loan. It means that even if you have an ideal debt service ratio of 60-70%, if your income does not meet the minimum required income, you will be denied.

So, in order to get approval, you should meet both requirements.

Bonus Suggestion

If you do not have a loan with a bank, you should obtain at least one loan from any bank. The best option is to use a credit card. Use your credit card and make timely payments.

When you apply for a home loan, the new bank will evaluate your repayment behavior based on your credit card track record. If you have no loans with any banks, your loan is likely to be rejected by the bank.