5 tips on how to save for your home down payment

April 2, 2019 editor

Owning that dream home isn’t just a tick off the bucket list – it’s the goal of millions, more if you’ve been renting for a while.

Unfortunately, home ownership is tough in Malaysia due to ever increasing real estate prices compounded by the rising cost of living.

If your financial record is solid however, and you have a good credit score, chances are you may be eligible for a loan of 90-95% of your property cost.

But even in a best case scenario, you’ll still have to arrange for the remaining 5-10% which constitutes the down payment. And there are other costs involved too.

Luckily for you, there are tips and tricks to help you get started on your journey to accumulate your home down payment fund.

1. Get clarity on your down payment fund

It’s crucial to know how much you’ll need to save depending on the type of home you want and the down payment tag attached to it. So do your research.

And even if you haven’t zeroed in on the exact house, your research will help you get a fair idea of how much a house should cost in your preferred locality.

Then comes your credit score. If you have a good score (670 to 739) you may qualify for a 90% loan.

If you don’t, you should try working towards improving it at the earliest. Alternatively, you’ll have to save up more for the down payment fund if your credit score is less.

There will still be a number of other costs to take care of apart from the down payment i.e. mortgage fees, legal fees, land tax, interior decoration (if not covered in the loan), etc. Factor in inflation as well.

Once these costs are taken into account, you’ll arrive at a target figure. Then divide it by the number of months you want to give yourself to raise that amount.

This figure will be your monthly savings target to build your home down payment fund. Having clarity of your goal always helps.

Alternatively, research approximately how much the monthly home loan instalment of your property will cost, and try and save up that amount every month.

2. Cut down on wasteful spending to boost savings

You should closely track every sen that leaves your account to look for ways to cut down on wasteful expenses.

Overpriced gym membership, costly cable TV subscriptions, frequent dine-outs, impulsive shopping are the obvious consideration points.

You may be in for an unpleasant surprise when you realise how much money you actually waste on unnecessary things each month that can be put to better use.

Also, such healthy cost-cutting habits will inculcate financial discipline which will help you better manage your finances in the future when you’ll have to repay your home loan instalments every month.

However, even if you have to go on a financial diet, keep in mind never to skimp on essential spends like medical checkups and vehicle servicing as ignoring these can actually be costly in the future.

3. Take steps to safeguard your down payment fund

So you’re diligently setting aside money every month for your down payment fund but suddenly one day you fall sick and need hospitalisation. You’ve used your down payment fund to pay for the medical bills.

It’s a fact that we don’t have control over future uncertainties, but we can take steps to safeguard our finances. Here’s how:

Emergency fund: Build a separate emergency fund so you don’t have to use your down payment savings for a medical emergency or job loss. Ideally, an emergency fund should have enough for at least three to six months’ expenses and be easily accessible i.e. a savings account.
Health insurance: Consider signing up for a health insurance plan (preferably with accident cover) for the same reason.
Stay fit: Lead a healthy life and quit unhealthy habits (like smoking) to minimise your chances of falling sick.

4. Increase your income

Sometimes mere cost-cutting may not be enough to build a down payment fund, especially if you have given yourself only a few years to raise the amount. You should seriously look for ways to boost your income — simply because more income means more savings.

Partake in Malaysia’s thriving gig economy and generate some side income during your free time.
Do upgrade your skills or pick up new ones in order to bag a coveted promotion or land a better-paying job.
Lucrative job offers not coming your way? Maybe you need to refine your job search.
Check out other job platforms that allow you to work from home.

5. Invest intelligently

Consider growing your income through investments but since the stakes are really high, assess the risk factors attached to your investments before making a decision.

Each investment instrument – be it low-risk fixed deposits or ASB fund to high-risk mutual funds and stocks – come with its own set of risk and rewards and you need to analyse them in order to find your comfort zone.

Here are some pro-tips:

Research: Put in ample research before making any investment. Don’t believe in hearsay. With proper knowledge and research, you’ll be able to understand investment instruments, your risk appetite, investment ambit, etc. Read investment-related books, and consult experts before taking the plunge.
Set a clear investment goal: Determine if you want to raise X amount in Y years to grow your core downpayment savings and try to calibrate your investment options accordingly.

You may want to consider investing a portion in a 3.5%-return fixed deposit, another in an 8%+ return ASB fund (only for Bumiputera) and a smaller portion in more lucrative but riskier stocks, commodities or unit trusts.

Diversify your investments: The key is to diversify your investments into multiple instruments with varying degrees of risk and rewards in order to ensure your total fund stays afloat even if some risky option fails to provide desirable returns.

Your hard-saved down payment fund will set you on course towards your life’s biggest purchase – your home. With the help of our tips, some smart planning and proactive financial management, you should be able to realise your dream soon.

Source : FreeMalaysiaToday