For those who are planning to purchase a home in 2020, these tips can help you avoid loan rejection from the get go. Remember, you will have to wait between 3-6 months before applying for another home loan.
Getting a home loan is one of the most crucial steps to owning a property. Banks can have thousands of reasons to deny a home application. In some situations, it can be unique to the loan applicant while in others, the reason is usually unknown despite the applicant doing everything right. However, the latter is usually not as common as the former.
Backed by over 21 years of experience and observations in the mortgage industry, here are my top reasons why Malaysian borrowers get handed with a rejection letter.
1. Developer or seller has been declared bankrupt
Banks will usually check for bankruptcy or ongoing legal proceedings of all parties using a system called Credit Tip Off System (CTOS). If a seller, may it be either an individual or even a company under Malaysian Law, is bankrupt, the property sale cannot be transacted.
2. Developer has been blacklisted by the bank
Every bank will have its own records of blacklisted developers, info may vary from bank to bank. Banks have their own specific reasons as to why a certain developer is blacklisted. Some reasons include the developer being bankrupt, being sued in court or have had a previous bad experience when the bank financed the developer’s last project.
3. Existing loan repayment is not prompt
Whenever banks process home loans, they will conduct a check through the Central Credit Reference Information System (CCRIS). This system is managed by Bank Negara Malaysia (BNM) and will reflect the borrower’s loan repayment record for the last 12 months. The report will include any home or commercial loan, car loan, credit card and personal loan.
If the loan repayment record shows any irregular repayments, then there’s a very high chance that the loan applicant may face rejection. I would encourage aspiring homeowners to print their CCRIS report at Bank Negara (it is free to print) before submitting their loan application.
4. Income criteria is not met
A mismatch of income levels to the homebuyer’s affordability is another common reason why a majority of loans are rejected. Consider this fact – if a loan borrower makes a net income of RM3,000 and the monthly loan repayment is RM2,500, would it make sense for a bank to consider lending to them? What this really means is that while this person may be eligible for a home loan, they may not be able to actually “afford” it. One will also need to factor in other aspects like living expenses and other payments associated with a property purchase.
A bank determines credit approval based on the borrowers’ repayment capability, which is also known as the Debt to Service Ratio (DSR). All banks will look into the borrowers existing debts to calculate the DSR before granting home loan approvals – approval criteria and DSR benchmarks will vary from bank-to-bank.
5. The property falls under bank’s blacklisted list
Just like the developer negative list, every bank will also have its own list for properties. This is for completed properties which have issues like: Landslide areas, flood-prone areas, bad property structure, properties located below high tension wire or even properties which have not obtained strata title after 10 years.
6. Leasehold property with less than 30 or 60 years of tenure
Depending on the bank, properties with a remaining lease of either 30 or 60 years or less will not be financed. The bank will view this type of property as high-risk financing as the property value will drop towards the end of the lease.
7. No income proof
Banks will always look at the financial documents that you submit. If you were to only submit a salary voucher, your loan will most likely be rejected. It is important to prove the source of income, a company-issued salary slip would be best, accompanied by Other financial documents such as EPF contribution, savings account statements and income tax declaration.
8. The bank officer who processes your loan application
Sometimes, the fault isn’t with the loan applicant. How experienced the Mortgage Officer who handles the case is, is very important too. If the officer in question is not familiar enough with the loan approval process, there is a very high chance that the loan will be rejected. I have met and consulted with many loan borrowers who got their loans rejected by one bank, but managed to get approval from another bank – sometimes even by the same bank, but at a different branch.
9. It’s not your fault, it’s the bank’s approval criteria.
If one bank rejects your loan application, is it the end? The answer is no. Different banks have different approval criteria and risk tolerance. You might not fulfil the criteria of one bank but that does not mean that other banks will not lend to you. If your loan is rejected, keep calm and find out the reason behind the rejection. Use that knowledge to learn about other banks’ approval criteria so that you can submit your application to the bank where you may have a higher chance of approval. However, do remember that you will have to wait between 3-6 months before applying for another home loan – so it’s crucial that you compare between banks before applying.
You might want to read this next: What can you do after your home loan gets rejected?