How you should handle loan rejections

• FINANCE
 
• GUIDES

Home loan just got rejected? Don’t worry, it’s not the end of the world. These 4 tips will help you get back on your feet in no time.

So, you’ve put together a home purchasing plan – did the math to figure out exactly what monthly repayment you can afford, searched high and low for that ‘perfect’ house, diligently completed all the required paperwork and even did your “good luck” jig before submitting your mortgage loan application.

But then your worst fear comes true – you end up with a frustrating, “Your housing loan application has been denied”.  There was no valid reason given either. Thousands of Malaysians have experienced the same moment of disbelief; many are unluckier than the rest as they have had not one, but two or more home loans rejected.

Generated via GIPHY

The thing is, banks are more prudent than ever with their lending requirements in the past 2-3 years, given the country’s high household debt. As of end-2017, Malaysia’s household debt topped 84.3%. Hence why it is crucial to not just try your best, you have to dot every single ‘i’ and cross all the ‘t’s before handing in your loan application.

Here are the 4 tips that you can apply right now to ensure success the next time around:

1. REFLECT – Determine the bank’s DSR percentage beforehand

Determine your DSR appetite….and the bank’s one too. Source: Getty Images

Any savvy home purchaser knows that he or she will have to first check their credit score via the Central Credit Reference Information System (CCRIS). This system which reflects your loan repayment record for the last 12 months shows banks how good or bad of a paymaster you are. What many fail to do however, is to not determine their Debt to Service ratio (DSR), which is a calculation of a person’s debt against his/her monthly income.

 DSR = (Total Commitment ÷ Nett Income) × 100 

Not only that, they also neglect to research the respective maximum DSR accepted in various banks. Most will just submit a loan application to multiple banks hoping that any one bank will bite. This is not a wise move, as should one bank reject your loan, the other banks will be aware of it through CCRIS. Your CCRIS not only displays your credit behaviour for the past year but also the history of any loan rejection(s) you might have. Hence, should you mess up, you will have to wait 12 months to wipe the (CCRIS) slate clean before you can apply for a new loan.

Each bank has a different DSR yardstick, so get your hands dirty and do your research; ask the loan officers or any contact who’ve just scored a loan from your target bank(s). Opt for the bank which provides you with the highest chance for approval. For instance, if your calculated DSR is 65%, you should then only apply at a bank whose maximum DSR is higher than 65%.

2. DON’T TAKE IT PERSONALLY – but being self-employed is not an excuse, you still need complete documentation!

Documentation, documentation, documentation! Source: Pixabay

Being a freelancer is probably the biggest dream come true for any millennial. Who doesn’t love the idea of working from home, where you get to set your own terms and working hours? Regardless how hardworking you are, at the end of the day, a bank requires proof of financial capability and will request the following documentation: latest EA form; latest 3 months of salary slips or 6 months of commission statements; latest EPF statements and the bank statement of your salary account (latest 6 months).

Thus, by hook or by crook you have to strive to check all these boxes –

1. EA Form: Declare all your income and pay your taxes on time.
2. Payslip: Get a part-time job at a stable company, preferably a reputable one. Ensure that you are getting the minimum income required that will help supplement your main (albeit unstable, to the bank’s eyes) income stream.
3. EPF statements: Make your own monthly EPF contributions, sourced from the income generated via your personal business. This will help build your profile as a responsible and credible paymaster and banks will look favourably on the consistent pattern which paints a stable persona of yourself.
4. Bank statement: Maintain a healthy financial portfolio and do not rack up any credit card debt. It is a big plus for you to open a fixed deposit account with your target bank to increase your chances and back your borrowing position.

3. LEARN FROM YOUR MISTAKE – Did you apply for a home loan refinancing? There’s a 10-year limit, not 35!

Check before you refinance or c. Source: Getty Images

Prior to Bank Negara Malaysia’s (BNM) lending application revision in 2014, homeowners could refinance their homes to 90% its value, with a maximum repayment tenure of 35 years and use the cashed out money for other investments. One of the amendments made by BNM 4 years back was to cap the tenure for personal financing at 10 years.

How does a personal financing rule affect my mortgage plan, you ask? Well, let’s say for example you have an existing home loan of RM300,000 with Bank A and want to refinance RM400,000 to Bank B. The additional RM100,000 in the loan will be considered as personal financing, hence the maximum 10-year tenure applies here.

Bank B will calculate your DSR using the 10-year sum instead of a conventional home loan’ s tenure of 35 years, resulting in a much higher DSR than the one you expected. Don’t be surprised when you are presented with a rejection letter; after all your current credit score was insufficient to qualify for the bank’s minimum DSR requirement.

4. REGROUP – and explore other financing options.

Scoring a home loan is like a game of chess. To win, you have to make a move. Source: Pexels.

In lieu of the weak economy and high home loan rejection rates, the Association of Banks Malaysia (ABM) via a media statement in July 2017, recommended aspiring first-time homebuyers to find out more about specific loan products introduced by banks for various Government schemes including the Syarikat Jaminan Kredit Perumahan Berhad’s  (SJKP) Housing Guarantee Scheme; schemes for selected affordable housing projects such as Rumah SelangorKu and RumahWIP;  My First Home Scheme (SRP) and PR1MA Special End Financing Scheme. Rent-to-own schemes, which fall under the PR1MA housing initiative are also available.

Alternatively, home hunters should check out Sunway Property’s Under The SUN Certainty+ financing campaign, which is designed to help purchasers achieve their home ownership dream during these uncertain times. 

For homebuyers who meet the basic criteria, the developer is offering 6 packages which include the:

• Guaranteed Loan: Financing of up to 88% of the property price for up to 15 years, and at a fixed interest rate that does not exceed 2% of a bank loan’s interest rate.
• Deferred Payment: A scheme where zero payment is made for a period of 12-24 months following a deposit of 3% or 6% & no interest is charged for the remainder of the downpayment.

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