Let’s face it; the easiest way to own a home sooner is by taking a housing loan. However, today banks have become very stringent while offering loans, especially home loans. Not all buyers will be able to secure one easily. Take a look at the main reasons for home loan rejection.
1. Applying for High Credit
Looking to buy a property that you won’t be able to afford? Sometimes you might tend to go overboard and apply for credit that might not be able to afford. This not only could lead to loan application rejection, but also can affect your credit score. Even if you apply for a loan the second time, the bank will be able to track if your loan was rejected previously and the reason behind the rejection.
- Go through the different loans offered by different banks and shortlist the ones you would like to apply for.
- Use the home loan calculators on the banks’ websites and check how much funds can you borrow from the bank.
2. Low Repayment Capacity
When you apply for financing, lenders check if you are able to repay on time before they approve your loan. If you have missed paying your credit card bills or any other loans, it could lower your credit score. Just like banks can track if your loan was rejected previously, they also check your credit score via CCRIS. This gives them a better understanding of your finances. You can expect a loan rejection if you have poor repayment capacity and if you have a bad credit score.
- Before applying for a loan, ensure that you have a good credit score. You can do that by settling your credit card bills on time and paying off any loans you have.
- Make sure that you do a proper analysis of the loans before applying for it. Don’t apply for loans from different banks at the same time.
3. Poor Financial Records
Do you have any litigation cases against you? If you have, chances are that your housing loan could be rejected. There are many credit reporting agencies in Malaysia such as the CTOS Data Systems Sdn Bhd that has records of individuals who have had cases against them or if they were bankrupt at some point.
- If you have had cases against you and you are not getting a loan from any bank, look for other financing alternatives.
- If you were bankrupt, establish and maintain a good credit history.
4. No Credit History
As mentioned before, the banks will be able to track your credit history when you apply for a loan. Not having a credit history is as bad as having a poor credit history. Since you don’t have a credit history, banks won’t be able to track your records. Even if you manage to secure a loan, you will get it a much higher interest rate.
- Establish a credit history by applying for a credit card and using it.
- Settle your bills on time and keep your debts low.
5. Unstable and Insufficient Income
Have you been changing jobs frequently? Your employment status plays an important role in determining whether you will be able to repay the amount to the bank or not. Some of the professionals who generally get their housing loans rejected are employees on probation, employees on contract, self-employed professionals, temporary workers, and those who earn by a commission. The same goes for insufficient income. If you don’t have sufficient funds in your account, the bank assumes that you won’t be able to repay the loan amount. If you earn RM4,000 per month and you have applied for a loan as per which you will have to repay RM3,500 per month to the bank, the bank is going to reject your application.
- If you have just changed your job, make sure to apply after the completion of at least 6 months to improve your chances of getting a loan.
- Business owners who are looking for housing loans can apply when their company profit is steady.
- Make sure you are earning enough to repay the loan.
6. Incomplete Application and Submission of Inaccurate Documents
Sometimes your application gets rejected due to your own negligence. The bank requests a list of documents that need to be submitted as a part of the application process. If you have not submitted all the documents or are unable to produce the documents for some reason, the bank can reject your application.
- Check the list of documents properly before submitting your application. If there is a delay in receiving the property documents, wait for all the necessary documentation and then apply.
- Go through your application more than one time and see if you have missed anything before submitting.
7. Property or developer is on the bank’s blacklist
Do you know that banks have their own blacklist for real estate developers and properties? The developer could have been blacklisted due to various reasons, especially if they are operating without a license or if they have any abandoned projects. The reasons can differ from bank to bank. Similarly, if you need a loan for a property on the bank's blacklist, your loan will get rejected automatically. A property can be on a blacklist due to many reasons, whether it is not ideally located according to the bank or if there are no property papers.
- Though this is not under your control, you can always check before opting for a property and a developer.
- There are more than 100 property developers who are blacklisted in Malaysia, so doing a background check would be a good idea.
Now when you know the probable reasons why your home loan was rejected, you can work on improving your chances the second time. The good news is that housing loan rejections have reduced from 26.1% in 2016 to 2017 to 23.1% till March this year, as per a report by the central bank. Though there is no guarantee that the bank will approve your application the second time you apply, you now have an idea on the areas you need to work on and can hopefully get financing for your dream home soon.