As a large number of our Malaysian population reach the age of financial independence, and prepare to build their own lives and families, it is understandable that one of the first big ticket things they want to buy is their own property. However, unlike credit cards (which are more easily applied and obtained), housing loans – or home financing – is a whole other ball game.
Even if you have not personally experienced having your housing loan application rejected by the bank, you might have heard stories from families, friends, or even your real estate agent about such incidents. Usually it’s related to poor credit record and compulsive job hopping, but do you know the actual reason(s) why? According to property investment author Michael Yeoh, these are nine of the most common reasons why home loans are rejected in Malaysia:
1. Developer or seller is bankrupt
Banks (and other financial lending institutions) will check whether the seller is a bankrupt or under legal proceedings from the Credit Tip-Off Service (CTOS). If a seller is bankrupt – regardless of whether the seller is an individual or a company – under Malaysian law, the property sale cannot be transacted. If you can get hold of the seller’s details, you will be able to check on their status. It’s a good idea to check before making your purchase.
2. Developer is blacklisted
Every bank has their own blacklist of developers, which varies from bank to bank. Banks have their own specific reasons why they blacklist a developer. Some reasons include the developer being declared bankrupt, being sued in court or have had bad experience when the bank financed the developer’s past projects.
3. Property is blacklisted
If your property is not a choice location for the bank, it can affect your approval even though you have good financial standing. For example, if the property in question has not received its strata title even after many years, some banks may not want to finance its purchase. Again, different banks have their own blacklist.
4. Inconsistent loan repayments
Whenever a bank processes a loan, it will check your track record in the Central Credit Reference Information System (CCRIS). The report will include any home or commercial loan, car loans and credit card and personal loans. If the loan repayment record shows irregular repayments, then there is a high chance that the loan application will be rejected.
5. Insufficient income
As the saying goes, don’t bite off more than you can chew. (The advice to live within your means works too.) Having insufficient income to purchase the property you want is the most common reason why most home loans are rejected by banks. The bank would not want to lend money to somebody who would not be able to pay their monthly loan repayment. This is how a bank determines credit approval based on the borrowers’ repayment capability. Different banks have different credit approval criteria. The banks will look into the borrowers’ existing debt ratio before granting approval.
6. Faking financial documents
Oh, no no no. Faking official documents is definitely illegal. If you have ever thought of falsifying financial documents or engaging someone to do this for you to get a loan approved, then you better think twice. If the banks were to discover this, the application will be rejected and it may even lead to a police case. The banks have ways to verify financial statement. Don’t even think of doing or engaging a company to do it on your behalf.
7. Leasehold property with less than 30 or 60-year tenure
Depending on the banks, properties with a remaining lease period of between 30 to 60 years or less will not be financed. Banks will view this type of properties as high risk financing, as the property value will drop towards the end of the lease.
8. No proof of income
Banks will always look at the financial documents that you have submitted. If you were to only submit a salary voucher, your loan will be rejected. You also need to submit proof of the source of income. Documents such as EPF contribution, savings account and income tax declaration where your salary is credited are very important, especially when you submit your income documents.
9. The mortgage officer processing your loan application
This last one is pretty much out of your control, but it could also play a part in whether you get that home loan or not. The experience of the mortgage officer plays a very important role in the loan approval process. If the person is new and does not know how to process and recommend a loan for approval, there is a very high chance the application will be rejected. Sometimes because they are new to the bank, the documents collected from the applicants are not enough to support the approval.