If you’ve recently put in an application for a housing loan in Malaysia and have been rejected, you’re not alone. This is a disappointment many prospective homeowners feel even after what they thought was a solid financial situation. Everyone wants to know why this rejection happened and how to improve their odds for approval. In this article, I’ll share with you the reasons why you are rejected home loan application in Malaysia and what steps you can take to get your home loan approved.
Common Reasons for Home Loan Rejection in Malaysia
When a banker looks at a housing loan application, a number of key factors are looked at. Below are the most common reasons for rejection:
1. Low Credit Score
Low credit score is one of the leading reasons for the rejection of housing loans in Malaysia. The credit score generated by agencies like CTOS and CCRIS is a representation of your financial history, particularly how you paid, your debt and defaults. Banks may view you as a high risk borrower, if you have a low score.
Solution:
To increase your credit score, make sure you pay all your existing debts, such as credit cards and personal loans on time. It’s important to do a regular credit report check and resolve any discrepancy immediately..
2. High Debt-to-Income (DTI) Ratio
Your debt to income (DTI) ratio is used by banks to see how much of your income is already dedicated to current debt payments. The more a high DTI ratio, the more it might indicate that you have not enough disposable income to pay for extra loan repayments. The DTI ratio of above 60% is usually regarded as too risky for approving loans in Malaysia.
Solution:
Your debt to income (DTI) ratio is used by banks to see how much of your income is already dedicated to current debt payments. The more a high DTI ratio, the more it might indicate that you have not enough disposable income to pay for extra loan repayments. The DTI ratio of above 60% is usually regarded as too risky for approving loans in Malaysia.
3. Unstable Employment or Income History
Banks prefer applicants with stable and predictable incomes, as this indicates the ability to meet loan repayments. If you’ve recently switched jobs, have gaps in employment, or have irregular income (common for self-employed individuals), your application may be rejected due to perceived instability.
Solution:
Try to establish job stability for at least six months to a year before applying. If you’re self-employed, provide at least two years’ worth of tax returns, bank statements, and other proof of income to demonstrate your financial stability.
4. Insufficient Down Payment
In Malaysia, home loan applicants typically need to make a down payment of at least 10% of the property’s purchase price. If you are unable to meet this requirement, your loan application may be rejected. While some banks may offer loans with a smaller down payment, these are often rare and come with stricter terms.
Solution:
Save up for a larger down payment. You could also consider using your EPF (Employees Provident Fund) savings or exploring government-backed schemes like the My First Home Scheme (Skim Rumah Pertamaku), which allows for lower down payment options for first-time homebuyers.
5. Property Valuation Issues
Should the bank assess the property’s value as less than the buying price, or if the property fails to satisfy the bank’s lending requirements (like being situated in a high-risk area or being in bad shape), the loan request could be rejected.
Solution:
Prior to applying, verify that the property is appropriately priced and that its worth corresponds with market trends. Think about obtaining an independent property valuation or speak with the valuers assigned by your bank to ensure that the property fulfills the bank’s requirements..
6. Non-Compliance with Bank-Specific Policies
Banks have different internal criteria. Some may not approve loans for foreigners, while others may have restrictions based on age (for instance, applicants over 55 years old may face difficulties). Certain banks may also reject loans if the property being purchased is intended for investment rather than as a primary residence.
Solution:
Research the specific criteria of different banks. For example, some banks specialize in loans for expatriates or foreign property buyers, while others have more flexible age-related policies. Knowing which bank suits your profile can increase your chances of approval.
How to Improve Your Home Loan Application
Now that you know the reasons behind home loan rejection, here are some tips to boost your chances of approval:
1. Improve Your Credit Score
A high credit score is crucial for obtaining a mortgage. Make sure to settle all your bills and debts promptly. A credit score exceeding 700 is generally seen as good, whereas any score below 600 could reduce your likelihood of approval. If your score is poor, dedicate time to enhance it by settling overdue payments and addressing any issues on your credit report.
2. Reduce Your Debt
When assessing mortgage loan applications, banks also consider a borrower’s debt ratio, i.e., the percentage of his monthly salary which is used in servicing existing debts. A low debt-to-income ratio disqualifies one from lending. You may wish to re-finance such debts before making an application in order to increase your possibilities.
Solution:
In order to improve loan eligibility, it is necessary to repay the outstanding credit card balances and other loans taken at high interest rates. It may also be worth paying off minor loans and taking high-interest loans on more favorable terms. If you have a debt-to-income ratio of less than 60 percent, your chances of obtaining a loan will undoubtedly increase.
3. Demonstrate Stable Income
Lenders prefer borrowers with stable and reliable income sources. If you’ve changed jobs recently or have a fluctuating income, consider waiting until your income is more predictable before applying for a loan. Self-employed individuals should provide at least two years of income documentation, such as tax returns and bank statements.
4. Save for a Larger Down Payment
The more you can contribute upfront, the less risk the bank perceives. A larger down payment reduces the loan-to-value (LTV) ratio and can increase your chances of approval. Saving for a down payment of at least 10% of the property’s purchase price is essential.
Solution:
In addition to saving, you can consider using your EPF savings or look into government schemes that assist first-time homebuyers.
5. Choose the Right Property
Banks are more likely to approve home loans for properties in well-established or high-growth areas. Make sure that the asset that you intend to purchase is within the well accepted market value and can satisfy the bank’s expectations. Avoid purchasing property which has high chances of being overpriced or is situated in less reasonable locations.
6. Consider Getting Professional Advice
If you are at all unsure about your prospect of approval or the process, it could be in your best interest to consult a mortgage broker. The brokers have relations with several lenders and can advise you on the best option for your financial profile. They can also advise you about how to make your application look better.
Final Thoughts
Gaining approval for a housing loan in Malaysia most often than not comes with a challenge especially if one is ignorant of the factors that lead to rejection. People can increase their chances of being successful by taking actions to fix the problems that lead to rejection. Various determinants such as credit score, debt amounts, employment status, and the size of the down payment seriously affect the bank’s decision whether to approve or disapprove the applicants.
Take time to improve your financial position, prepare a large sum for the down payment, and ensure that the property you wish to buy is properly valued. With proper planning and implementing the right strategies, your chances of being able to secure the mortgage needed for the purchase of your dream home are increased.
