Factors that determine your maximum loan amount
How much a bank can lend to you depends on four key factors:
- Your Debt Servicing Ratio (DSR)
- An individual’s risk profile
- Property valuation
- The maximum Loan-to-Value (LTV) ratio / Margin of Finance available to you
This article covers only the DSR factor, and we will first address some common misconceptions.
Myth #1 – Banks will only lend you up to 1/3 of your gross income
This is only a recommended guideline for borrowers. In practice, banks use more refined rule sets during credit approval.
Myth #2 – The maximum loan amount you can get from each bank doesn’t vary much
There are enough exceptions to say that credit policies can differ greatly from one bank to another. Maximum borrowing amounts can even differ up to 3x between different banks.
Myth #3 – Banks only lend up to 70% of your DSR
This is only another rule of thumb and not particularly exact.
Debt Servicing Ratio
The DSR is meant to show how much of a person’s income is used to service debt instalments, and is represented as a percentage (%) of income. It is derived from 2 main components:
DSR = Commitment / Income
Between different banks, there can be major differences in the final DSR amount that is calculated. This is because every bank has their respective calculation methods for income and commitment recognition.
Example 1: Standard Chartered Bank may base their calculations on Gross Income, while RHB and Maybank may base it on Net Income.
Example 2: CIMB and HSBC may recognize 100% of rental income, while Public Bank and OCBC may only recognize 80%.
Example 3: RHB recognizes only 45% of foreign derived income, while Hong Leong considers 100% of it.
It is not unheard of that when different banks calculate the DSR for the same person, there can be DSR differences of up to 20%! But the differences do not stop there.
Once the DSR has been determined, every bank will have their respective guidelines for the maximum allowable DSR threshold. It is typically determined by income level, but may also be affected by net worth and even things as arbitrary as qualifications and age. Some examples of bank guidelines:
|Income||Bank A maximum allowable DSR||Bank B maximum allowable DSR|
|< RM3000||60% of Net Income||60% of Net Income (+10% if professional)|
|< RM6000||70% of Net Income||70% of Net Income (+10% if professional)|
|< RM10,000||75% of Net Income||80% of Net Income (+10% if professional)|
|> RM10,000||80% of Net Income||90% of Net Income (+10% if professional)|
Unless you are familiar and up-to-date with the credit guidelines of each bank in Malaysia, it can be very difficult to determine the maximum home loan amount that's available to you. This is especially so for businessmen, foreigners, Singaporeans, and Malaysians working overseas.
By making use of our Comprehensive Home Loan Check, you can find out and understand your maximum borrowing ability for housing loans very quickly. All this is made possible because of Loanstreet’s familiarity with the credit guidelines of banks in Malaysia.
Once you have an idea of how much you can borrow, you can then proceed to search for the best loans available with our Home Loan Comparison tool!