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

Purchasing a home in Malaysia typically entails obtaining a housing loan from a bank to finance your purchase. However, many people are unaware of how much home loan they can qualify for based on their income. Check out this article to get an idea of how much the banks will lend you for your property purchase.

This article will discuss Malaysia's overall median income, or the typical take-home pay of a rakyat or an average individual. It will also go over the various median incomes in the Southeast Asian country's various states and federal territories, as well as the corresponding loanable amounts. This article will also discuss the debt service ratio (DSR), other costs of homeownership, and the various housing loans available in Malaysia.

Malaysian state median incomes and home loanable amounts

According to the latest government data, 2020 Salaries & Wages Survey Report by the Department of Statistics Malaysia (DOSM), the average Malaysian's monthly income is RM2,062 or RM24,744 per year.

Assuming a home loan term of 35 years, an interest rate of 3%, a monthly debt obligation of RM200, and a maximum percentage of gross income to be spent on mortgage repayment of around 30%. As a result, the average Malaysian (individual borrower) can borrow up to RM160,842 and his monthly loan repayments cannot exceed RM619. This is determined by internal calculations.

Table 1: An individual borrower with a median income

Location	Monthly median income (RM)	Annual median income (RM)	Monthly loan repayment (RM)	Maximum loan (RM)
Malaysia	2,062	24,744	619	160,842

Note:

• For individual borrowers

• Loan term: 35 years

• Max percentage of income to be spent on loan: 30 percent

• Interest rate: 3 percent

• Monthly debt obligation: RM200

Notably, financial experts advise that your monthly mortgage payment should not exceed one-third of your gross income. This is to ensure that you can comfortably repay your mortgage while still having enough money for necessities and emergencies.

Borrowing as an individual, on the other hand, means having less purchasing power and fewer real estate options. Spouses and joint borrowers who both earn a living, on the other hand, have more purchasing power and can afford a more expensive residential property.

For example, a couple with a median income can borrow up to RM322,684, but their monthly loan payments cannot exceed RM1,238. This is based on the same assumptions as above, except that the existing monthly debt obligation is doubled to RM400.

Table 2: Joint borrowers, each with a median income

Locatioin	Monthly median income (RM)	Annual median income (RM)	Monthly loan repayment (RM)	Maximum loan (RM)
Malaysia	4,124	49,488	1,238	321,684

Note:

• For husband and wife, assuming each has a median income

• Loan term: 35 years

• Max percentage of income to be spent on loan: 30 percent

• Interest rate: 3 percent

• Monthly debt obligation: RM400

Please keep in mind that the overall country's median income is RM2,062 per month or RM24,744 per year. As a result, some states and federal territories have higher or lower median incomes than Malaysia as a whole.

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

Kelantan (RM87,567), Kedah (RM101,338), and Terengganu have the lowest median incomes in the country (RM105,496). As a result, an individual with a median income in these states can only afford residential properties costing between RM87,567 and RM105,496. The assumptions are the same as above, with an RM200 monthly debt obligation.

Table 3: Median income in different Malaysian states (individual borrowers)

Location	Monthly median income (RM)	Annual median income (RM)	Monthly loan repayment (RM)	Maximum loan (RM)
W.P. Putrajaya	3,717	44,604	1,115	289,723
W.P. Kuala Lumpur	3,037	36,444	911	236,715
Selangor	2,725	32,700	818	212,550
W.P. Labuan	2,130	25,560	639	166,039
Johor	2,124	25,488	637	165,519
Melaka	2,120	25,440	636	165,259
Pulau Pinang	2,082	24,984	625	162,401
Negeri Sembilan	2,062	24,744	619	160,842
Pahang	1,753	21,036	501	130,181
Sabah	1,716	20,592	486	126,283
Perak	1,629	19,548	452	117,448
Sarawak	1,593	19,116	437	113,551
Perlis	1,571	18,852	428	111,212
Terengganu	1,514	18,168	406	105,496
Kedah	1,474	17,688	390	101,338
Kelantan	1,343	16,116	337	87,567

Note:

• For individual borrowers

• Loan term: 35 years

• Max percentage of income to be spent on loan: 30 percent

• Interest rate: 3 percent

• Monthly debt obligation: RM200

Even those living in the three states with lower median incomes can purchase a better home priced between RM175,134 and RM210,992 if there are two borrowers, each with a median salary (e.g., husband and wife). Similarly, those living in the wealthier states and Federal Territories can afford a half-million-ringgit residential property.

Table 4: Median income in different Malaysian states (joint borrowers)

Location	Monthly median income (RM)	Annual median income (RM)	Monthly loan repayment (RM)	Maximum loan (RM)
W. P. Putrajaya	7,434	89,208	2,230	579,446
W. P. Kuala Lumpur	6,074	72,888	1,822	473,430
Selangor	5,450	65,400	1,636	425,100
W. P. Labuan	4,260	51,120	1,278	332,078
Johor	4,248	50,976	1,274	331,038
Melaka	4,240	50,880	1,272	330,518
Pulau Pinang	4,164	49,968	1,250	324,802
Negeri Sembilan	4,124	49,488	1,238	321,684
Pahang	3,506	42,072	1,002	260,362
Sabah	3,432	41,184	972	252,566
Perak	3,258	39,096	904	234,896
Sarawak	3,186	38,232	874	227,102
Perlis	3,142	37,704	856	222,424
Terengganu	3,028	36,336	812	210,992
Kedah	2,948	35,376	780	202,676
Kelantan	2,948	35,376	780	202,676

Note:

• For husband and wife, assuming each has a median income

• Loan term: 35 years

• Max percentage of income to be spent on loan: 30 percent

• Interest rate: 3 percent

• Monthly debt obligation: RM400

Debt service ratio

The figures above are intended to give you an idea of your maximum loanable amount and monthly instalment. The actual figures, however, vary by borrower because each bank has different policies for calculating how much they can lend to a prospective home buyer. Banks also use mathematical tools to determine how much money they should lend.

The Debt Service Ratio (DSR) is a mathematical tool used by banks in Malaysia to determine whether you can repay the mortgage you're applying for and how much you can afford to pay for your monthly housing loan instalments.

DSR is typically calculated by dividing your monthly net income by your total monthly debt obligations, including the monthly instalment for the housing loan you're applying for. After that, multiply the figure by 100 to get the percentage.

DSR = Debt/Net Income X 100

It is important to note that your total monthly debt obligations include both bank and non-bank debt. Credit card bills, personal loans, and car loans are examples of bank debt, whereas non-bank debt includes monthly repayments such as Malaysia's student loans. Also, rather than gross income, the bank uses net income, which includes all statutory deductions such as taxes, Zakat, EPF, and SOCSO.

If you're still perplexed, here's an example DSR calculation. Assume your monthly net income is RM4,000, your total monthly debt obligations are RM1,400, and you're applying for a mortgage with 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 compared to the bank's permissible DSR limit. If your interest rate does not exceed the bank's maximum percentage, you've cleared one hurdle in getting your home loan application approved.

Keep in mind that DSR requirements vary by bank. While some may have a low maximum, such as 50 or 60 percent, others may accept up to 80 percent. The DSR cap is also determined by the profile of the would-be borrower or your level of net income, with less affluent households having a lower DSR limit and wealthy individuals having higher DSR limits ranging from 80 to 100 percent.

What are the other costs of homeownership, aside from mortgages?

If you want to get the most out of your home loan, know that it is not advisable because, aside from the monthly mortgage payments, there are some other expenses you must pay to protect your home and keep it in livable condition. These are some examples:

Upkeep. Buying a property in Malaysia can be expensive, likewise for maintaining and fixing the home you bought. According to the most recent Household Expenditure Survey Report, Malaysians spend 4.4 percent of their monthly income on maintenance, as well as purchasing 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. Your utility bills will be higher if you have a larger household and more appliances.

Insurance. Purchasing insurance is an excellent way to protect your investment from unforeseeable accidents or natural disasters such as fire, typhoons, flooding, and earthquake. However, insurance can be costly, and your monthly premium will be determined by the number of covered risks, the value of your belongings, and the value of your home.

Local property taxation. When you buy a house in Malaysia, you must pay an assessment tax, which is usually 4% of the annual rental value of your residential property. If you live in a landed home, you must pay quit rent, whereas those who live in a strata-titled development must pay parcel rent. The size of your property influences both quit rent and parcel rent.

Management costs. If you live in a strata-titled residential development, such as a condominium, you must pay monthly management fees. Your rates will be determined by the location and size of your unit. The fees collected are used to maintain shared facilities such as lifts, gardens, parking spaces, and swimming pools by the Management Corporation Strata Title (MCST).

Homeowners' Association Fees (HOA). If you live in a gated or guarded community, such as a gated or guarded residential development, you may be required to pay fees to maintain facilities and amenities that are shared by all homeowners in the area.

Malaysian home loans that are available.

In general, the Southeast Asian country offers four main types of home loans.

Fixed. These are mortgages with fixed interest rates that do not change over the life of the loan. This is recommended for those who do not want their monthly payments to rise.

Floating. These are home loans whose interest rates can fluctuate depending on the benchmark to which the loan is linked. However, with the US Federal Reserve hinting at additional rate hikes in 2022, interest rates around the world may rise further, potentially leading to higher monthly payments.

Hybrid. These are home loans with a fixed interest rate for a set period of time (e.g., 5-10 years), followed by a switch to a floating interest rate.

Islamic. These are Syariah-compliant loans with no interest rates. Essentially, the buyer asks the lender to purchase the home that they want to finance, which is then sold to the buyer at a higher price. Following that, the buyer is asked to pay for the house in instalments or through a "rent-to-own" program.

If you are looking for a suitable bank to apply to for a housing loan, know that Malaysia has many reputable financial institutions, both local and multinational. These are some examples:

• Maybank

• Standard Chartered

• HSBC

• Public Bank

• Citibank

• UOB

• RHB

• AmBank

• Affin Bank

• CIMB

• Bank Rakyat

• Bank Simpanan Nasional (BSN)