Before you start decorating your dream home, make sure you know how to apply for a home loan and what could cause it to not be approved. Home loan requirements have become stricter, so you need to make sure you have everything you need before applying. Here are a few things that could stop your home loan application from being accepted.
1. You are not prompt with payments
One of the major reasons for your home loan being rejected is if you’re not consistent with your payments. If you fail to pay your bills on time, it can significantly lower your credit score.
This can make it extremely difficult to secure a loan. The credit score is evaluated through the Central Credit Reference Information System (CCRIS) which assists the lender in determining an individual’s creditworthiness. This report will show if you have been a regular paymaster. If it’s not up to the mark, chances are high that the loan application will be rejected.
Therefore, one must always ensure that all payments have been made on time and that none have been overdue. It is also important to request your CCRIS report in order to verify the status of your credit score.
For those who are already facing issues with their credit score, it is best if you wait for a minimum of one year before re-applying for the loan. This will help improve your credit score, which would, in turn, increase your chances of getting the loan. So, it is important to bear in mind that if you’re looking for a home loan, you must make sure that your credit score is in order and all payments have been made on time.
2. Submitting a request for a loan when you do not meet the prerequisites
Don’t try to get a loan when you know you don’t qualify. Not only will your loan be rejected, but it will also hurt your credit score and make it harder to get loans in the future. Banks can tell if you have been rejected for a loan before, so they consider you a risk.
If your loan is rejected, check your credit report to figure out why and improve that area. Make sure to research which lender would be best for your financial situation. If the lender has just been too strict, research other lenders that may be more likely to approve your loan. Moreover, you can explore other loan options, such as Building Society loans, that may be more lenient with their credit requirements.
Rejection of a loan application can be disheartening, however, it’s important not to be discouraged and instead, to use the opportunity to make yourself a better borrower. With effort and dedication, you can get the loan you need and make your dream home a reality.
3. Borrowing money without a corresponding rise in earnings
It is important to not take on too much debt without increasing your income. Bank Negara Malaysia (BNM) has taken steps to help people in Malaysia reduce their debt burden, and those steps include calculating a person’s debt-to-income ratio. To do this, you should subtract your EPF contribution, income tax, and other credit debts like hire purchase or credit card loans from your total net income.
Most lenders want you to have a debt-to-income ratio of between 60% and 70%. If your ratio is above this, it could be the reason your home loan application is rejected. This means that before you apply for a loan, it is important to make sure that you meet the lender’s debt-to-income requirements. If necessary, you can reduce your debt by paying off smaller loans or debts such as credit cards to lower your ratio and make you more likely to be approved for a loan.
You should also be aware of the BNM’s Debt Management Program. This program is designed to help those in Malaysia who are struggling with debt. It is a free service that provides advice, guidance, and assistance to those who qualify. It also provides debt consolidation options and debt restructuring facilities to help people manage their debt. This program can be a great resource for those who need help managing their debt and may be struggling to be approved for a loan.
4. Failing to provide all the necessary paperwork
If you don’t provide all the necessary paperwork when applying for a credit provider, it could affect whether your loan is approved or not.
The documents usually needed include
- a filled in and signed loan form
- Your identity card
- a SPA/booking receipt/Letter of Offer
- Individual title deed
- Property valuation report (if the property is completed)
- Salary slips
- Commission statements
- EPF statements
- EA forms
- bank statements
- A letter of employment and remuneration.
It is a bad idea to try to create fake financial documents or have someone else do it in order to get a home loan approved.
Not only could your loan be rejected, but you could also end up being arrested for forgery. Lenders have ways to check whether the paperwork is real or faked, for example, if you give a false pay slip, it can be checked against your EPF statement.
5. Inability to demonstrate sufficient income
If you’re aiming to get approved for a home loan, verifying that you have enough money to cover the payments is a must.
Banks will want to see records of your pay slips and bank statements as proof that you make enough money to pay back the loan without any issues.
Depending on the bank you’re applying to, they may also consider how long you have had the same job and if you have been with the same employer for more than two years, the chances of you getting approved for a loan increase significantly.
For business owners, you will need to provide documents that demonstrate how much money you make from your business consistently. It is always a good idea to compare different loan rates from different banks and perhaps even get the advice of a mortgage broker, so that you can secure the loan with the best rate that fits within your financial affordability.
In order to make the lenders trust that you can pay the loan back, you need to present valid documents that will show that you are reliable and have the financial capability to repay back the loan.
If your finances are not in good shape, it can be challenging to get approved. It is essential to get your finances sorted before applying for a loan to have a better chance at getting approved.
Conclusion
In conclusion, it is important to be aware of the potential roadblocks that could prevent your home loan application from being accepted.
By making sure you are prompt with payments, meet the prerequisites, and have a manageable debt-to-income ratio, you can increase your chances of securing a loan and making your dream home a reality.
It is also important to consider the resources available, such as the Debt Management Program, to help you manage your debt and improve your creditworthiness. With effort and dedication, you can overcome any obstacles and achieve your goal of homeownership.
