Food for thought: If one day your friend wants to borrow RM1mil to replace mortgage from you to purchase a house and promises to pay you back via monthly instalments for the next 35 years, how would you react? Personally, my top priority would be to take stringent steps to ensure that I would be able to get my money back.
This applies to the banks too when one applies for a loan especially your mortgage. Here’s a quick summary of the process in three simple, sure-fire steps:
Step 1: Your Profile Matters
Ever wonder why the application forms have so many fields to fill, none of which are related to the property you want financing for? This is because each and every field in the forms give a score towards your eligibility. This scoring is called an “application score”.
The place you live, your marriage status, your occupation and so on will give you points. The higher the points, the better your score and the higher your chance of getting your loan approved. So, remember: do not ask someone to fill your forms for you or leave them blank because this will affect your score.
Step 2: Get your Income Recognized for Credit Rating
How much you earn matters to the bank. You need to make sure all your income can be recognised by the bank with proper documentation. On top of that, how much you earn and your income sources are important too.
Some banks will only recognise a certain percentage of your income especially when that income source is not fixed like commissions and incentives. For example, some banks will recognise only 80% of a commission and some banks will recognise only 50%. You will need to ask the banker how much will be recognised because each and every bank will have a different method of recognising income.
This income will be used to compute your debt service ratio (DSR). This is to check whether or not you can afford the loan. DSR is your existing commitment plus new commitment over your net income after deductions from EPF, PCB, SOSCO and EIS. Most banks will reject your loan if your DSR percentage is more than 70% of your net income and every bank will have a different cut-off for DSR. Do ask the banks what their cut-off rates are to ensure they approve your loan.
We need to be disciplined in keeping good records with the banks. When you borrow, you need to pay your loans on time. Bad records will be recorded in CCRIS and CTOS which banks will review. Once it has been deemed that you have a bad record, your application will be rejected.
Step 3: The Right One Will Get the Job Done
Bankers, lawyers, agents and sales representative are all key players in your property purchase journey. It is advisable that you engage the person who is committed and can guide you. A simple rule is that if they can explain to you all the terms and conditions about your property purchase agreements, then he is experienced and can help you make better decisions.
That being said, it is very important for you to equip yourself with the right knowledge by asking all the crucial questions about the loan.
About the Author
Gary Chua is the Chief Executive Officer of Smart Financing Co.