Reasons to get your housing loan rejected

Continuing yesterday's "tips to get your loan approved more easily" , today we are going to look at the reasons why loan application gets rejected. Although there are news saying that it is about 50% of applications of house loans getting rejected , but statistics have shown that in 2016, the Association of Banks in Malaysia actually has a approval rate of 73% on housing loans. This is definitely a good news for every home-buyers. So what makes you get into the other 27% of the majority?

Those applicants that failed to get the loan approve are due to the reasons as below:

• Debt service ratio (DSR) – Knowing the ratio of your debt to income is important and key in getting your loan approved. This is a formula used by banks to evaluate your affordability level. ( Formula : [Total Commitment + New Application] / Net Income ).   This has become the most common rejection reason for housing loan applications.  Different banks have a different DSR cut-off or capping (eg: 60%, 70%, or some even up to 80%).

• Stained credit score – Central Credit Reference Information System ( CCRIS ) report shows the records of the applicants. If the credit score is lower than expected by the lender, high chances are the application will get rejected. It is crucial for you to repay all your other mortgages on time (car loans, student loans, credit card debts) as they will stain your clean record and stay there for at least a year if you ever delayed the payment. 

• Bankruptcy – Once you go into bankruptcy, the record is going to stay in your CTOS permanently. And the lenders will give a frown at your loan application. Most banks are highly alerted once they get to know your "blacklisted" status, even after you are no longer bankrupt.

• Incomplete required documents or submit wrong documents - This is actually the 2nd popular reasons for getting the application rejected. Please check the required documents well and prepare everything. 

• Income insufficiency or instability - If you have been changing jobs in the recent years, there are chances that it could affect your score for the housing loans as they deem you to be unstable enough to repay the mortgage on time.

• Apply loan within the period of employment less than 6 months - same reason as above.

When you are having a large amount of debts or monthly commitments on hand, it is advisable to plan your finance well before you proceed to purchasing a house. Write it down in a proper paperwork so that you can show it to the banks that you are doing a good job in managing and reducing the debts. It boosts their confidence to approve your loan applications.

If it helps, its worth it.Happy investing and stay happy!

W.

Tips to get loan approved... with better chances.

Having your loan rejected after paying for the deposit of the houses will definitely let you have a headache. Not to mention the sophisticated process of refunding and cancelling the houses that you eyed upon. Unless you are a cash buyer, we all rely heavily on the loan approval for our house purchasing.

Some might be confused why their loan is rejected , or only approved with a low margin % of loan. Here are the tips to help you increase your chances of getting the loan approved. (Not guaranteed though but better chances!)

1) Your Affordability
The banks will definitely require you to submit all the documents such as your payslip and monthly commitments as they will use it to evaluate your ability to return the loans. Check your own affordability with your current salary range before you decide to buy the house. You can also look for financial planners to get a better idea of your current financial status.



2) Don't change your job... too often
Believe me, the banks can search for almost everything on your records. If you happen to jump around companies and could not stay on the same place for more than a year, they will be more reluctant to approve your loan. Reason? You might not be able to find a job on time to repay the mortgages.


3) Have a clean credit record
DO NOT BE LATE to pay off your credit card debts or student loans. They will stain your CCRIS record which can be checked by all banking institutions. If you get blacklisted, even after you pay the debts, it needs one whole year to clean your records off the desk.

You can easily get your CCRIS report from Bank Negara Malaysia or online through CCRIS website.


4) Show them your treasure box
Show them copies of your savings, be it from stock investments or fixed deposits. The more the merrier. Income from your side hustles can also be used in this case. This will put confidence to the banks to approve your loan as you have a lower chances of defaulting on the loan.


5) Get your pre-approved loan offer first
It allow the buyers learn the maximum they can borrow and therefore have an idea of their price range before picking any properties. However, all buyers should be careful to estimate their own comfort level with a housing payment rather than immediately aiming for the top of their spending ability.

Also, it gives you a better standing to negotiate on the property prices as you had already proved that you obtained the loan approval and will be able to buy the house anytime you want.

Having the loan rejected after finding your love-house will give you a lot of heartache. Try to have a consultation with the banking institutions first before you start the home-buying process. Gather up the paperwork or recent bank statements to check with them whether the chances of loan approval are high. 

Happy investing and good luck with the applications!

W.

Are you debt-free?

Most of the people get stressed when they look at their overdue bills and debts. They don't like the feeling of owing debts. They feel like they are working their asses off just to meet the bills every end of the month. They couldn't achieve their financial freedom with this mountain of debts.

Question is, are debts always a bad thing?

Taking our Malaysian PTPTN loan for tertiary education as example, the cost of getting a degree in public universities is around RM30K ~ RM40k (which is definitely a huge difference with private universities which can cost up to RM300K)  and you only get to start paying off the loan 6 months after you graduate from your university. And you know what, the payment is only RM100-300 per month for maybe 20years and with an interest rate of only 1% !!

Do you know what that means? If you put the amount of money in fixed deposit (which gives around 3.5% interest rate), you earn the excess 2.5% rate even you had to pay for the 1% interest rate. Assuming you had to pay it off in 20years, you could have accumulated a total of ~RM60K by just putting in fixed deposit bank account while the 1% interest is only ~RM7K extra , you can earn ~RM23K by just paying off your loan on time slowly instead of in one shot !

If you opt to pay off RM30K in one go, you can skip paying the 1% interest but what for the hassle? You could've earn the excess 2.5% while paying your loan on time! ( which mean you are not blacklisted, just in debts, you still can go for travel overseas.)

Not to mention that if you opt to pay off one shot after you graduate, I am quite sure that you would have used up your emergency fund or any savings that you kept for years. Although you are now debt-free, but you are actually exposed to more risk of financial crisis. You could be unable to pay for your unforeseen car maintenance or a leaking house because you do not have any savings left.
Of course those can wait until you earn some money, but what if the circumstances is that you got into an accident *touchwood* and you need a large sum of money to go for operation? Will your debt-free status save your life now?

Everyone loves to be debt-free including myself. But we will need to gauge our own ability well before we make any decisions that could ultimately expose ourselves to a higher risk of unforeseen circumstances.

That being said, if you have achieved your debt-free status while being able to comfortably cope with your life, congratulations! You are definitely few steps ahead than most of your peers.

W.