Before buying a house, most of us want to know, how much loan can be approved based on our current income.

And it’s can scary if stepping into the buying process without getting this fact straight.

So, today we’re going to discuss – How much loan can i get on my salary?

If you’re earning RM3000 and above, most likely the bank does not require for a joint borrower.

But, if your income is less than RM3000 per month, there is a very high chance you need a join borrower for the loan.

Even some banks have started with a minimum income of RM3000, RM4000 and some even RM5000.

When the bank gives out a loan, they need to know whether are you capable of paying the loan back?

This is absolutely logic.

Would you give out a loan to someone that not able to pay you back?
I think you won’t either.

In order to know whether you’re capable to pay back or not, the bank created this Debt Service Ratio (DSR) formula.

Using DSR, they will know whether you are able to pay them back.
DSR Formula,
Preferable less than 70% = ( Total Commitments (existing commitment and new home loan instalment) / Net income ) x 100%

For example,
Total commitments: RM2000
Net Income: RM5000

2000/5000×100% = 40% ( anything less than 70% is okay)

So now, I’m going to walk you through how to use the DSR calculation in order to know how much your entitlement.

Step 1 :
Identify your net income. Your net income should be after EPF and Socso deduction.
For example, your net income is RM5000.
Then, multiply with 70%, like this.
RM5000 x 70% = RM3500
RM3500 is the allowable commitments from your income. Your existing and new installment should not exceed this amount.

Step 2 :
Identify your existing commitment installments.
For example,
Personal Loan: RM500
Car Loan: RM600
Credit Card ( total outstanding) : RM5000 x 5% = RM250
( For the credit card the bank will multiply with 5% from the total outstanding amount)
Total existing commitment: RM1350

Now, the new commitment installment should be in the range of
RM3500- RM1350 = RM2150

Step 3:
Download Karl’s Mortgage Calculator App from Play Store.

Using a mortgage calculator, I’m using Karl’s Mortgage Calculator App. You can download it on your mobile, this is a FREE app and quite useful too. Go to Play Store. Or you can use any mortgage calculator online to calculate the installment.

If using Karl’s Mortgage Calculator, tap to the Principal Amount.
Key In Interest rate: 4.80%
Years ( tenure) : 35 years ( or depending on your age. Tenure is up to age 70 or max 35 years whichever comes first)
Payment: RM2150
The calculator will reverse calculate the loan amount at the Principal Amount.
And you will get, loan amount RM436,987.73.

Now, you know that your loan can be approved at RM436,987.73.

Step 4:
In order to know how much purchase price you should target, we need to do a final calculation.
This is the formula.
Loan Amount/90 x 100 = Purchase Price
* 90 is the margin of finance.

436,987.73/90 x 100 = RM485,541.92

Conclusion :
If you’re earning RM5000.
And your existing commitment is RM1350
Your loan entitlement is 436,987.73.
And the purchase price you should target is RM485,541.92

Is this easy?
Let me know if this is too difficult for you to understand.

I was in this industry since 2003, that’s about 16 years ago.
Oh my gosh, suddenly I feel so old. ? Some of my school mate children are 16 years old ?

16 years ago, a home loan is so much easy to approve compare to right now.
I can’t imagine what will happen after another 16 years.
Will the approval be even tougher than now?

Only God knows.?

#malaysiahousingloan

Melissa Lee
Online Home Loan Consultant

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