2. Chapter9
Learning Objectives
2
1. Evaluate available housing alternatives
2. Analyze the costs and benefits associated with
renting
3. Implement the home-buying process
4. Calculate the costs associated with purchasing
a home
5. Refinancing
6. Develop a strategy for selling a home
3. Housing Alternatives
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Objective1: Evaluate available housing alternatives
Your lifestyle and your choice of housing
– How you spend your time and money, affects your housing
choice.
– Personal preferences are modified by financial factors.
Traditional financial guidelines suggest you spend no
more than 25-33% of take-home pay on housing, or no
more than 2 1/2 times your annual income.
4. Housing Alternatives (continued)
4
Opportunity costs of housing choices
Interest earnings lost on money used for a down
payment or the interest on a security deposit for an
apartment
Time and cost of commuting to live in an area that
offers less costly housing or more space
Renters lose tax advantages and equity growth
Time and money you spend to repair and improve a
lower-priced home
Time and effort when you have a home built to your
personal specifications
5. Renting yourResidence
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Objective2: Analyze the costs and benefits
associated with renting
The search
Select an area and rental cost for your needs
Compare costs and facilities between units
Talk to current and past residents
Advantages of renting
Easier to move
Fewer maintenance and repair responsibilities
Lower initial costs
6. Renting your Residence (continued)
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Disadvantages of renting
No tax benefits
Limitations regarding remodeling
Restrictions regarding pets and other activities
Legal concerns of a lease
Costs including a security deposit, utilities and
renter’s insurance
7. Renting your Residence (continued)
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LEGAL DETAILS OF A LEASE
Description and address of property
Name and address of the owner/landlord (lessor)
Name of tenant (lessee)
Effective date and length of the lease
Amount of security deposit
Amount and due date of rent
8. Renting your Residence (continued)
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Location where rent is due
Date and amount for late rent payments
List of included utilities, appliances
Restrictions on certain activities
The right to sublet the unit
Conditions where landlord may enter rental unit
9. Home Buying Process
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Objective 3: Implement the home-buying process
Step 1: DETERMINE THE HOMEOWNERSHIP NEEDS
Be ne fits of Home Ownership
Pride of ownership
“American dream”
Financial benefits
Deduct property taxes and mortgage interest
Potential increase in value of your home
Building equity in your home
Lifestyle flexibility - express your individuality
10. Home Buying Process (continued)
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Drawbacks of Homeownership
Financial uncertainty
Obtaining money for the down payment
Obtaining mortgage financing
Home values could drop
Limited mobility
Can take time to sell your home
Higher living costs
Home improvements
Rising real estate taxes
11. Home Buying Process (continued)
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Assess Types of Housing Available
Single-family dwelling
Multi-unit dwelling
Duplex, townhomes
Condominium
You own your unit in a building of units
It is not a type of building structure, but rather a form
of homeownership
Cooperative housing
Non-profit organization - members own shares and
rent a unit in a building with multiple units
12. Home Buying Process (continued)
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Manufactured homes
Fully or partially assembled in a factory, and then
moved to the housing site
Prefabricated type has components built in the factory
and assembled at the site
Mass production under factory conditions keeps costs
lower than site built homes
Mobile homes
A type of manufactured home, often <1,000 sq. ft.
Offer same features as a conventional house
Safety is debated and they tend to depreciate
13. Home Buying Process (continued)
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Building a home
Does the contractor have needed experience?
Does contractor have a good working
relationship with architect, suppliers,
electricians, plumbers, carpenters and others?
What assurance do you have about quality?
What are the payment arrangements?
14. Home Buying Process (continued)
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What delays will be considered legitimate?
Is the contractor licensed and insured?
Are there any complaints about this contractor?
Contract should have a time schedule, cost
estimates, description of work, and a payment
schedule.
15. Home Buying Process (continued)
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Step 2: FIND AND EVALUATE A PROPERTY TO
PURCHASE
Selecting a Location
Be aware of zoning laws
Assess the school system if you have children.
Using a real estate agent
They present your offer, negotiate the price, assist
you in obtaining financing, and represent you at the
closing
Conduct a home inspection or hire an inspector
16. Home Buying Process (continued)
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Step 3: PRICING THE PROPERTY
Determine the Home Price
Price is affected by whether it is a seller’s or a buyer’s
market.
Negotiating the Purchase Price
Counteroffers are common
Earnest money
Contingency clauses, such as...
Buyer must be able to obtain financing
Sale contingent on the sale of the buyer’s current
home
17. The Finances of Home Buying
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Objective4: Calculate the costs associated with
purchasing a home
Step 4: OBTAIN FINANCING
The types will be divided into Federal Treasury, Government of
Malaysia and loan from commercial banks. The objective of
Federal Treasury is to make sure the employees of the
Government of Malaysia have their own house and to increase the
comfortable life through Federal Treasury Housing Loan Scheme.
Type: 1) Treasury Housing Loan Scheme (SPPP)
2) Islamic Housing Financing Scheme (SPPPI)
The Islamic scheme is devised and implemented in accordance
with the Syariah principle of al Bai’ Bithaman Ajil.
18. The Finances of Home Buying (continued)
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Type of loan or financing provided by the
government:
Buying a readymade house
Build a house in the borrower’s land]
Buy land
Buy a house that is still under construction
Housing loan or financing settlement from
bank or financial institution
19. The Finances of Home Buying (continued)
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Loans from Commercial Banks
Conventional Financing
Offers various benefits and many facilities to financing
or refinancing housing plan
Provide convenient repayment option that is
repayment through online banking, ATMs and internet
High financing margin up to 100% financing
Insurance coverage to protect your house and housing
repayment
Longer repayment period max 30 years up to age 60
Customer can revise monthly installment to suit
financial situation
20. The Finances of Home Buying (continued)
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Islamic Financing
No risk against fluctuated of interest rate
High financing margin up to 100% financing
Fixed profit margin
Customer will know the selling price
Takaful coverage to cover owner’s Takaful and
Mortgage Plan
Longer repayment period maximum 35 years.
21. There are two types of mortgage involved:
Fixed Rate Mortgage (FRM)
Payment remain the same for the life of the
loan
Tenor will be between 15 t0 30 years
The rate is predictable therefore can easily
budget your finance
Housing cost remains unaffected by the
interest rate changes and inflation
FRM normally will suit those who expect to
remain in their homes for a number of years
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The Finances of Home Buying
(continued)
22. Adjusted Rate Mortgage (ARM)
Payment increase or decrease on a regular schedule
with changes of interest rate, in case of increase there
is a subject to limit
Balloon mortgage will offer very low rate for initial
period, when the time has elapsed the balance due or
being refinanced
Generally off lower initial interest rate, monthly
payments can be lowered
It may allow borrower to qualify for the higher loan
amount
The interest rate you pay will generally drop if
prevailing interest rates go down
Low start rates can reduce your initial payments,
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The Finances of Home Buying
(continued)
23. Monthly Installments
How much can you afford to pay for the
monthly installments?
Fixed or Conventional Rates
A fixed interest rate on home loan promises
fixed installments throughout the loan tenure.
It offers stability against fluctuating financing
costs and also it offers stable financial
planning for your financial commitments.
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The Finances of Home Buying (continued)
Other costs associated with home buying:
24. Down Payment
Generally, if we want to buy a house, we need to pay a
booking fee of 2% to 3% of the purchase price. This is
non-refundable, but it can refund only if a person’s loan
application is rejected by a bank.
In addition, the bank usually finances up to 90% of the
price of the property meaning that we must have at least
10% in cash for the down payment. Some banks also
offer up to 100% financing for eligible purchasers of low
cost houses.
We also can withdraw a limited amount from our
Employee Provident Fund (EPF) (Account 2) for the
down payment.
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The Finances of Home Buying (continued)
Other costs associated with home buying:
25. Stamp duty
Stamp duty is levied on the document of transfer
that is the Memorandum of Transfer if the title
has been issued, or the Deed of Assignment of
Principal Selling and Purchase Agreement
(SPA) if the title has not been issued, the stamp
duty is based on the purchase price of the
house.
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The Finances of Home Buying (continued)
Other costs associated with home buying:
Value of property Rate of stamp duty
RM1.00 to RM100,000.00 1 %
Next RM101,001.00 to RM500,000.00 Add another 2 %
RM501,000.00 and above Add another 3 %
26. Legal Fees
The first Schedule of the Solicitors Remuneration Order
1991 sets out the fees to be collected by lawyers for
work done in handling the sale of purchase of house
based on the purchase price as follows:
1% on the first RM100 000
0.5% on the next RM4 900 000
0.25% on the remainder
For each sale and purchase of a house, the solicitors
can only collect fees based on the above from either the
seller or the purchaser and not from both parties.
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The Finances of Home Buying (continued)
Other costs associated with home buying:
27. Mortgage Reducing Term Assurance (MRTA)
A reducing term life assurance that provides home
financing borrowers with financial protection in the event
of premature death or total permanent disability.
A house buyer needs to buy Mortgage Reducing Term
Assurance (MRTA) which ensures that your house will
be paid for in full if anything happen to you as the buyer.
The one-off premium payment is generally computed on
the age of the borrower, loan amount, tenure and
interest rate. It can be paid in cash up front or included
in your loan to minimize the initial cash outlay required.
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The Finances of Home Buying (continued)
Other costs associated with home buying:
28. Refinancing
As a house buyer or borrower we may want to refinance
the house that we have bought, especially when the
interest rates are low, refinancing can be a good move.
The major benefits of refinancing are lower monthly
installment payment and shorten the length or tenure of
loan. Reasons of refinancing are to save interest cost by
replacing their current loan with a more cost-efficient
home loan package offered by their bank or another
bank; reduce monthly mortgage payment; lessen or
increase their loan tenure; and possibly, use funds for
medical payments, children’s education or consolidate
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Objective 5 : Refinancing
29. Refinancing
Things to consider before refinancing:
What is the interest rate you are paying now?
What is the current interest rate? To get the
benefits of a lower rate, you may have to pay
fees associated with the loan, unless if the
lender is doing it without any fee. Discuss the
fee option with your lender/loan officer.
Make comparison of both rates.
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30. Refinancing
How long are you going to stay/live in your home? It
may not be worth refinancing when you have to pay
cancellation fees to move your mortgage, if you plan to
sell your house in few time, refinancing could be an
excellent way to reduce your monthly payments. Or if
you plan to move to a new house but retain the old
house for rental, refinancing will be a good decision. You
can lower your monthly mortgage payment and in turn,
increase your rental income.
Is there any penalty for early settlement of your existing
loan? And how many months notice do you have to give
before refinancing?
Do you have other needs for cash for example to pay
your other debts?
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31. Types of title
Freehold
This type of title gives the owner the perpetual
ownership.
If you purchase a freehold property, you will own the
home, the land it is built on, and you will have the right
to live there for as long as you please. You can make
moderations to the property within restrictions of the
law and planning restrictions. You may need
permission to make structural changes, particularly
with listed buildings (old buildings). Most houses are
sold freehold. Flats can be sold freehold, but very
rarely, they’re usually leasehold. However, flats are
increasingly becoming freehold because of
a legislation that is making it easier for leaseholders to
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32. Types of title
Leasehold
This type of title gives the owner to stay in possession for specified
time period for example 99 years.
At maturity the ownership will be given back to the authority for
example Selangor State Government.
If you buy a leasehold property you are actually buying the rights to
live in a property for a set period of time. You won’t actually own the
property, or the grounds it is situated on. Most flats are leasehold;
with the lease, it means you are obligated to pay ground rent to the
freeholder. The ground rent will cover the costs for communal
maintenance repairs. The lease should stipulate how the service
charge is worked out, and how it is divided between the other
leaseholders. It’s important to calculate all these costs before
committing to a leasehold property, as you may not have budgeted
for the additional costs.
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33. Types of title
Leasehold
Once the set period in the lease expires, the ownership of the
property is given back to the land owner. Most leases are roughly
99 years; however, you can get an extension. If anyone is buying a
leasehold property, it is important to find out how long the lease is
for as it will affect the value of the property.
Why do people get leasehold properties? Well, because most flats
are leasehold, and it means everyone living with in the same
building has to split maintenance costs in respect of the common
parts of the building and the communal areas.
It is possible to extend the leasehold to up to 999 years, and you
can actually purchase the freehold, but at a cost.
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34. Selling YourHome
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Objective6: Develop a strategy for selling
Preparing your home
Repair, repaint, and clean
When showing home turn on lights and open drapes.
Bake bread or make coffee for a welcoming smell
Determining the selling price
Appraiser estimates the current value
Real estate agent markets your home
If “for sale by owner,” use a lawyer or Title Company
Listing with a real estate agent for services
