Getting a home loan is a critical step in owning a property. Banks may have countless reasons to reject a home loan application. Sometimes, the reason is specific to the applicant, while in other cases, it might seem unclear even when the applicant has done everything right. However, the latter is less common than the former.
With over 21 years of experience in the mortgage industry, here are the top reasons why Malaysian borrowers often receive rejection letters.
- The developer or seller is bankrupt
Banks will check for bankruptcy or ongoing legal issues of all parties involved using the Credit Tip Off System (CTOS). If the seller—whether an individual or a company—is bankrupt under Malaysian law, the property sale cannot go through. The same rule applies to the buyer. If the buyer has been declared bankrupt, the home loan application will be denied. If you think you might be bankrupt, you can check your status by visiting the Malaysian Department of Insolvency. For a small fee, you can search their website to see if you’ve been declared bankrupt. -
The developer is blacklisted by the bank
Each bank keeps its own list of blacklisted developers, and this information can vary between banks. Developers may be blacklisted for various reasons, such as bankruptcy, ongoing lawsuits, or past issues with the bank when financing previous projects. To avoid getting your mortgage application rejected because of developer issues, it’s important to do your research. Unfortunately, checking a developer’s background isn’t as straightforward as checking someone’s bankruptcy status. Start by checking MYEG to see if the developer’s company is bankrupt. However, keep in mind that if their name doesn’t show up, it doesn’t necessarily mean they aren’t bankrupt—they could be operating under a sister company. Also, look for the latest list of blacklisted developers in Malaysia. If the developer’s name isn’t on the blacklist, it’s likely that the company is reputable. -
Existing loan payments are not made on time.
When banks process home loans, they check your repayment history using the Central Credit Reference Information System (CCRIS), managed by Bank Negara Malaysia (BNM). This report shows your loan repayment record for the last 12 months, including home or commercial loans, car loans, credit cards, and personal loans.
If the report shows any late or missed payments, there’s a high chance your loan application might be rejected. After the COVID-19 pandemic, many people wondered if deferring loan payments under the moratorium would affect their credit score. The good news is that it won’t. If you used the moratorium, your payments will be listed as deferred, not defaulted. To ease your worries, we recommend that anyone planning to buy a home prints their CCRIS report at Bank Negara (it’s free) before applying for a loan. -
Income requirements are not met.
A common reason for home loan rejections in Malaysia is when a borrower’s income doesn’t match the affordability of the loan. For example, if someone earns RM3,000 a month but the loan repayment is RM2,500, it wouldn’t make sense for a bank to approve the loan. Even if the person is technically eligible, they may not realistically be able to afford the loan after considering living expenses and other costs related to buying a property.
Banks decide on loan approvals based on the borrower’s repayment ability, known as the Debt to Service Ratio (DSR). This ratio takes into account the borrower’s existing debts, and each bank has its own criteria and DSR limits when approving home loans. -
The property is on the bank’s blacklist.
Similar to the blacklist for developers, banks also have their own list of problematic properties. This list includes completed properties with issues such as being in landslide or flood-prone areas, having structural problems, being located under high tension wires, or not obtaining a strata title after 10 years. -
Leasehold property with less than 30 or 60 years remaining on the lease.
Depending on the bank, properties with less than 30 or 60 years left on the lease may not be financed. Banks consider these properties high-risk because their value decreases as the lease gets shorter. -
No proof of income
Banks always review your financial documents when you apply for a loan. If you only provide a salary voucher, your loan is likely to be rejected. It’s important to show proof of income, like a company-issued salary slip, along with other documents such as EPF contributions, savings account statements, and income tax records.The documents you need vary depending on whether you are employed or self-employed. If you’re employed, check the housing loan checklist for employees. If you’re self-employed, you’ll need a longer list of documents. Refer to the checklist for self-employed persons to see what you need.
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The bank officer handling your loan application
Sometimes, the problem isn’t with the loan applicant. The experience of the Mortgage Officer handling your application is crucial. If the officer isn’t familiar with the loan approval process, your loan might be rejected. I’ve seen many borrowers get their loans turned down by one bank but get approved by another, or even by the same bank at a different branch.
Can An Approved Loan Be Cancelled?
Imagine getting your mortgage loan approved, only to have it rejected a few months later. Luckily, in Malaysia, this is not a common issue. In other countries, loans can be rejected after pre-approval due to reasons like stricter bank rules, job changes, negative credit, or pending approvals at other banks. However, in Malaysia, once your mortgage loan is approved, you can generally be confident that it will stay approved.
How Many Times Can I Apply for A Loan?
You can apply for a home loan as many times as you want in Malaysia—there’s no limit. However, if your applications keep getting rejected, it will be harder to get approved in the future. It’s a good idea to wait 3-6 months between applications and figure out why your loan was rejected. Often, it’s because of a poor credit score. Try to improve your credit score before applying again to increase your chances of approval.
If one bank rejects your loan application, it’s not the end. Different banks have different approval standards and risk levels. Just because one bank turns you down doesn’t mean others will. If your loan is rejected in Malaysia, stay calm and find out why. Use that information to understand what other banks are looking for and apply where you have a better chance. Remember, you should wait 3-6 months before applying again, so compare banks carefully before reapplying.
