Top 10 Tips for Home Loan Application
Are you planning to buy a house in Malaysia? As I really start planning for my future life and settling down, getting a property to call my own is definitely at the top of the list. However with my current financial position it is definitely difficult to be able to afford it. The first thing that pops up on anyone's mind when they are planning to get a property is... Getting a House Loan.
But the thought of getting a house loan approved is stopping you from taking another step further because you have heard a lot of stories on the housing loan gets rejected by the banks or how lengthy it could be. You certainly do not want to prepare so much and finally found the right house only to get your bank loan rejected. All the hard work that you have done in researching, planning and preparing have all gone to waste. Fret not, there are some things that you could do to speed up and ensure a seamless house loan approval. There are many comprehensive guides to different types of property loans in Malaysia
Most people have the misconception that the amount the bank approves is based solely on the salary but this is not the only factor that affects your loan eligibility. This article will guide you through your actual eligibility to applying for a home loan.
1. Debt Servicing Ratio
First of all, the bank will check your debt servicing ratio (DSR) before deciding how much loan you are entitled. Do note that different banks have different ways to determine your DSR although you provide the same information to the banks.
2. Risk Profile
In addition, the bank will determine your creditworthiness based on your risk profile, which include your spending habits, job stability and etc. Your inability to pay off your bills or debts will be an important factor that deters you from securing a mortgage loan. So for those of you who always miss out on your credit card payments or your loans, this will affect your credit rating.
3. Property Value
As the properties in the property market are overpriced, banks will then need to engage with property valuators to further confirm the property that you are applying a bank loan is really worth the amount that you will be paying for. The reason for doing so is to allow the bank to resell your property and regain the money in case you are unable to pay for your bank loan.
You know those signage that you see on lamp posts or at the traffic light for auction houses? Yup, that's when you're not able to finance your loan and the bank is forced to auction off the property.
4. Margin of Finance/Maximum Loan to Value Ratio
A loan to value (LTV) ratio is a number that is used to describe the size of the loan compared to the value of property securing the loan. Banks or lenders will use the LTV ratio to understand how risky the loan is and it is also commonly used by bank to decide whether to approve the bank loan or not.
Typically, a residential housing loan will expect a 90% LTV ratio in Malaysia. However, if the applicant has more than 2 housing loans, naturally the LTV ratio for the next housing loan will be lower. In addition, LTV ratios are generally lower for foreigners as they have leser attachments in Malaysia due to the restrictions imposed.
The period for loan repayment is commonly up to 35 years, starting from the day your loan gets approved, or until the age of 65 years old, whichever that comes first. That being said, younger applicants in their 20s will stand a higher chance of securing a house loan from the bank as compared to applicants who are already in their 60s.
6. Number of Dependents
The number of dependants that you have will affect your loan eligibility as well. For example, if you have a wife and five children, your chances of securing a bank loan will be lower as compared to applicants with a wife and two children.
7. Joint Applicant(s)
Your joint applicant(s) matter a lot when it comes to the application of housing loan. The bank will check on his or her creditworthiness before they approve the house loan. In addition, your relationship with the joint applicant(s) is taken into consieration as well. Spouse, parents, and children will naturally have lesser disputes as compared to relationships with your friends or siblings.
Moreover, your employment status is one of the criteria that the bank prioritises when it comes to housing loan approval. Your profession is also one of the factors that will affect your eligibility in securing a home loan. Applicants with a full time job and secured salary paying job stand a higher chance of securing a bank loan as they are deemed as more stable as compared to applicants that own a business on their own, where it is considered unstable with lesser job security and unfixed income.
9. Relationships with banks
Lastly, your relationship with the bank matters when it comes to applying for a bank loan. Loyal customers to a bank will have the added advantage when it comes to applying for bank loans. However, you do not have to worry if you are not a customer to the bank as long as you have a clean history and you are not blacklisted from any banks.
10. Bank Agreement
In conclusion, these tips will increase your eligibility when it comes to applying for a home loan. Getting your home loan approved is not as daunting as it seems to be, as long as you start preparing and planning earlier. Be sure to read through the conditions on the bank agreement before you sign the loan agreement.
Let me know if you have any other tips to share.
Til next time,