You are finally close to getting your dream home. You’ve managed your finances well and found a house that fits your budget. You’ve determined a monthly repayment you’re comfortable with and filled out the required forms carefully. Nervously, you handed everything to the bank officer.
After weeks of waiting, you get bad news – your loan application was denied! To make things worse, the bank officer can’t give you a clear reason for the rejection. You’re left wondering what went wrong.
Here are some tips to help ensure a successful outcome:
- Identify the issues in your CCRIS report.
These days, almost everyone knows they need to check their credit score with the Central Credit Reference Information System (CCRIS) first. This system shows your credit activities for the past 12 months and tells the bank if you’re good at paying your debts.But having a good credit score isn’t everything. Other factors can affect your report too. For example, did you know that all your loan rejections show up on your CCRIS report? This can be a problem if you apply for loans at many banks. Banks can see past rejections on your CCRIS record, so you might have to wait 3-6 months before applying again.
It’s important to improve your credit score before trying again. If you have several credit cards and loans, making timely payments can show that you can manage your debts and are reliable.
Also, having no debt isn’t always a good thing. Banks might be hesitant to approve your loan if your CCRIS report is blank or “clean,” meaning you have no credit cards, loans, or overdrafts. It’s better to have at least one active credit account with on-time payments to show the bank you can handle debt responsibly. - Find the bank with the best Debt Service Ratio (DSR)
Another important factor to consider is your Debt Service Ratio (DSR). This ratio shows how much of your income goes towards paying off debts.DSR = (Total debt ÷ Net income) x 100
Banks often reject loan applications if your DSR is higher than their maximum limit. Each bank has its own DSR limit, which can depend on factors like your income, age, qualifications, and net worth. Ideally, your DSR should be between 50%-60% to stay below the maximum limit of many banks, increasing your chances of loan approval.
If your loan was denied because of a high DSR, don’t worry! You can improve your DSR by reducing your debts or consolidating your unsecured loans and credit card bills. - Gather at least 6 months of documents
Whether you are a salaried employee or a freelancer, keeping detailed financial records is important because banks need proof of your financial stability.
To make submitting your loan application easier, keep the latest 6 months of the following documents:
– EA Form/Form BE/Form B: Always file and pay your income taxes on time.
– Salary slips/proof of income: Banks need a continuous monthly record of your income, whether it’s salary slips or business bank statements. Ensure all records are organized and complete.
– EPF statements: If you’re a salaried employee, you and your employer make monthly EPF contributions by law. If you’re a freelancer, consider making voluntary monthly contributions to improve your credit profile.
– Bank account statements: Maintaining a current account or a separate savings account with a steady balance can help show you are a responsible borrower. Stay updated on Bank Negara Malaysia’s latest borrowing rules.
With Malaysia’s economy changing slowly, it’s important to know Bank Negara Malaysia’s borrowing rules. In 2014, they made big changes. Before that, homeowners could refinance up to 90% of their home’s value and use the extra money for investments, with a loan term up to 35 years. But in 2014, BNM said personal loans could only be up to 10 years long.
Why does this matter? If you have a home loan of RM400,000 and want to refinance for RM550,000 with a lower interest rate, the extra RM150,000 is a personal loan with a 10-year term. This could raise your DSR, lower your credit score, and make it harder to get a loan.
BNM also found many banks had unfair terms in housing loans. BNM will soon make standard rules to make sure loans are fair, clear, and give good advice to borrowers. Before you get a home loan, learn these new rules and your rights.
Are you searching for a new property in Johor Bahru? Discover more here. Contact us today for further details and secure your new property in Johor Bahru.
