You’ve found your dream home and you’re already window shopping for things to decorate it with. However before you start choosing wallpapers, consider the possibility of your loan not getting approved.

Today’s home loan application and approval can be tedious, with so many possibilities of issues coming up and putting a halt to your loan application.

Over the years, home loan requirements have grown stricter. Hence, you need to be more prepared than ever. Here are some way you COULD be sabotaging your loan application without knowing it.

You’re a bad paymaster.
Your ability of paying bills on time is a benchmark when it comes to lenders accessing your loan repayment ability. Missing out on you monthly bill settlements will lower your credit score. If your credit score is too low, your chance of securing a home loan is pretty much close to none.

How does this work?

1. Lenders will check your credit score through the Central Credit Reference Information System (CCRIS).
2. CCRIS, which is managed by Bank Negara, reflects your loan repayment records for the last 12 months.
3. If your records indicate that you’re an irregular paymaster, the bank gives you a low credit score, making the chances of your home loan application being rejected high.

What you can do, is make sure you spring clean your record by paying your bills vigilantly and promptly. Make sure your credit is clean for a straight 12 months on the CCRIS report, and you can apply for a loan once again.

Applying for credit that you are not qualified for
Don’t try your luck with a loan. It’s never a good idea. Not only will the application get rejected, the rejection will negatively impact your credit score, making future credit application tougher.

How does this work?

1. CCRIS allows lenders to track your loan submission and rejections to any other lenders.
2. If a bank sees more than one previously rejected loan application, they would consider you a risk to give a loan to.

Don’t panic! Check your CCRIS and find out the reason your loan was rejected, and work on improving that aspect before applying for your next loan. A mortgage broker will be able to calculate your affordability based on your debt-service-ratio (DSR) before they even begin the application process. This will minimize the risk of your home loan being rejected.

Having more debt without increasing income
Debt-service-ratio (DSR) is a ratio of your net income and your monthly credit commitment. Credit providers are required to observe prudent debt service ratios in their credit assessments to ensure households have sufficient financial buffers to protect them against rising costs and unexpected adverse events.

This is part of the effort taken by Bank Negara Malaysia to lessen the debt burden amongst Malaysians.
How is this done?

1. The calculation of DSR is done by comparing your total net income against your total credit commitments, such as monthly repayments for your hire purchase, personal loan, credit cards, or other home loans.
2. Standard DSR limit is between 60% and 70%. If your DSR is higher than the lender’s limit, you could risk having your loan rejected.
What you can do is find out what your lender’s debt-to-income ratio is and check if it matches yours. From there, you could look out for other lenders with higher limits or pay off some of your smaller debts like credit cards or study loan.

Incomplete documents
Credit providers usually require a similar set of documents to process your application. The documents required are:

• filled and signed application form from the lender
• the borrower’s NRIC or identity card
• a copy of sales and purchase agreement (SPA) or booking receipt or Letter of Offer from the developer
• a copy of Individual Title Deed
• Property Valuation Report (for completed properties)
• latest 3 consecutive months of salary slips or vouchers
• latest 6 consecutive months of commission statement (if pay is commission-based)
• latest EPF statements (with 3 consecutive months or more transaction history)
• latest EA form
• latest 6 months bank statement for the salary account
• Letter of Confirmation of Employment and Remuneration

Have all the documents ready and you’ll stand a higher chance of your loan being approved. Never ever think about creating fake financial documents or commit forgery. If a lender finds out that you’ve faked these documents, you could end up behind bars for forgery.

Unstable income
The most common reason that causes loans to get rejected – income insufficiency and instability. Here are a few things that lenders will look at;

1. Employment stability – lenders would usually request for a 3 to 6 months’ pay slip and bank statements.
2. Proof of business – if you’re a business owner, you’ll need to show that your business brings in consistent revenue and profit.

When you look for a home loan, you need to present yourself as a reliable bet for lenders. You will come across as a great candidate if you can demonstrate your ability to repay to the best of your ability.

However, if you are deeply in debt and have too many credit problems, regardless of how many lenders you reach out to, you would not be able to obtain a home loan. In such circumstances, it would be right to get your finances in order first before you decide to take a loan and buy a home. Rectifying these mistakes can increase your chances of securing a home loan you desire, and you could very well be on your way to purchasing your dream home.

If you are shopping for a home loan, find the ideal home loan with our mortgage experts.


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