For first time homebuyers, treading the waters of purchasing a house can be rather daunting and confusing. Sure, you know you’ll need to look high and low for the perfect property, save up quite a bit to pay for the down payment and have the necessary qualifications to (successfully) apply for a bank loan. However, many fail to consider in their calculations one final, but very important, part of the homebuying process – closing costs.
What is it?
When you get a housing loan, you will need to pay closing costs, which are fees charged by lenders (the bank) and third parties related to the purchase of the home. So, in addition to paying the down payment, principal and interest of the mortgage, you will also owe them closing costs, which you usually pay at the time that you close or finalise the deal on your property purchase. Closing costs are typically 2% to 5% the total purchase price of your property.
What are the items included in the closing costs?
They include (but are not limited to) the following:
- Stamp duty
- Sale & Purchase Agreement (SPA) legal fees
- SPA stamp fee
- SPA legal disbursement fee
- Loan facility agreement legal fees
- Ownership title transfer fee
- Initial interest
- Home insurance
- Government tax
- Bank loan processing fee
- Inspection/Appraisal fee
The bottomline?
Besides saving to pay for the down payment of a property, you will also need to include in your savings calculations the closing costs. Do note that closing costs will typically amount to about 5% of your property’s total purchase price, so be prepared to come up with at least RM20,000 (based on a RM400,000 property) in addition to your 10% down payment amount. Make sure you have that amount ready before you rush into a deal; after all, if your closing costs are lower than that, it means you can put down more for the down payment. As the saying goes, “better safe than sorry”!
You can use online calculators (like this one from HSBC) to calculate your closing costs as well as other property-related costs.
