Ineligible buyer incomes, credit history, low margin of financing and bank’s request for more documentation have been the main reasons for the increase in loan rejections. Around 46% of loans were rejected for houses priced in the RM250,001 – RM500,000 range, and 19% for the RM700,000 - RM1 million range.
So what do you need to get your housing loan approved?
Banks will generally assess how much you can borrow based on these 4 factors:
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An individual’s risk profile
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Property valuation
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The max Loan-to-Value (LTV) ratio or Margin of Finance available to you
Your DSR and risk profile are weighted more heavily compared to your property valuation and maximum LTV that’s available to you. An individual’s DSR shows a bank your financial ability to pay your debts and calculates accordingly how much of a person’s income is used to pay all their debt instalments, represented in %:
High debt repayments in comparison to your nett income, will result in a higher DSR – this implies to the bank that you may be borrowing beyond what you can afford and are at high risk of defaulting on your loan.
As a rule of thumb, a healthy DSR rate is around 30% of your nett income. However, banks do allow on average between 70-80% DSR.
To lower your DSR, you need to reduce your total debt or increase your nett income. On top of having a low DSR, banks will also scrutinise your credit history to assess your risk profile and do a background check on your past and existing debt repayments.
6 Ways To Improve Your DSR & Credit Ratings
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Reduce Your Total Debt
Clear off as much debt as you can and do it as soon as possible. This includes all types of bank and non-bank debt.
Bank Debt: Housing loan, car loan, personal loan, credit cards, etc.
Non-Bank Debt: PTPTN loan, Debt securities, Government Programmes, etc.
High credit card balances and outstanding PTPTN loans can attribute to high DSR rates. For example, if you fail to pay back your PTPTN loan, you can be in danger of getting blacklisted on the CCRIS list and rejected by banks.
Do not take for granted repayments of non-bank debts as banks will look at these repayments in the same way as other bank debts. This will be reflected in your CCRIS & CTOS records, explained below.
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Keep A Good Credit Score/History
Your credit history will be an indicator and proof to banks whether you are a good paymaster or at risk of defaulting/missing loan repayments.
Banks will refer to two primary sources to check your credit history:
If you have been making your repayments on time and in full, there is little that you have to worry about. However, it’s always a good idea to check both your CCRIS & CTOS status periodically.
If you find yourself in any of the negative situations above, take steps to improve your CCRIS record before your next loan application.
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If You Don’t Have A Credit Record, Start One Now
Not having a credit history can be just as bad as having a poor credit record. Banks are very likely to reject your application if they do not have any form of proof to support your ability to make repayments.
This is especially true for graduates or first-time loan applicants. Get started by applying for a credit card, keep your balance low and pay in full every month. If you can’t make the full payment, try to pay as much of the balance as you can.
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Keep Low Credit Card Balance
Having a high balance can look bad - banks will question why you have a lot of debt in the first place and it can imply that you are not managing your personal finances responsibly.
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Show That You Have Savings
Banks like people with savings. Individuals with savings are considered to be at low risk of defaulting payments as they are able to show that they have sufficient finances to fall back on. This includes all types of fix-deposits, funds, bonds, etc.
Keep all your documentation up-to-date when submitting your loan application. Loans can still be rejected if you do not present the necessary documentation.
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Combine Incomes
Another way to improve your DSR is to increase your nett income by combining your income as ‘joint purchasers with a spouse or partner in your loan submission. Be sure that both of you fully understand your individual legal rights to the property as joint purchasers.
Conclusion
The above serve as guidelines for the main technical aspects that banks commonly use to assess your eligibility for a loan. You can always work on increasing your total nett income and banks are also favourable if you can demonstrate job stability or are employed by reputable companies.
Calculate your housing loan eligibility and get an estimate on your affordability.
Having a good DSR or credit score does not automatically mean that you’re clear of any financial risk. You personally have the responsibility to ensure that you are not spending beyond your affordability and it is equally important to consider your loan repayments together with your total household expenses and saving priorities.
