MANY house buyers looking for loans have been turned away as banks have become more stringent with lending rules. This can make buying a house an unattractive proposition.
Banks can reject home loan applications for a number of reasons, including a poor credit record and compulsive job hopping.
GM Training Academy PLT chief executive officer and founder Michael Yeoh said banks had a hundred and one reasons to reject a home loan application.
He said if a bank rejected your loan application, and you knew the reason why your application was rejected, you had the added advantage of preparing in advance for your next loan application.
“You will definitely have the added advantage before you submit your documents to the bank as you will be able to avoid the mistakes made in the first loan application,” he said.
According to a book published by Yeoh and his partners titled “Property Investment BLT, Size Up your return with Bank, Law, Tax”, here are the top nine reasons why banks can reject your loan:
1. Developer or seller is declared bankrupt
Banks will check whether your seller is a bankrupt or under legal proceedings from CTOS. If you can get hold of the seller’s details, you will be able to check his status.
If a seller is bankrupt (regardless of whether the seller is an individual or a company), under Malaysian law, the property sale cannot be transacted. It is a good idea to check on the status of the seller before making your purchase.
2. Developer on a bank’s blacklist
Every bank has their own blacklist of developers, which varies from bank to bank. Banks have their own specific reasons why they blacklist a developer. Some reasons include the developer being declared bankrupt, being sued in court or have had bad experience when the bank financed the developer’s past projects.
3. Property on the bank’s blacklist
If your property is not a choice location for the bank, it can affect your approval even though you have good financial standing. For example, if the property in question has not received its strata title even after many years, some banks may not want to finance its purchase. Different banks have their own blacklist.
4. Existing loan repayment not prompt
Whenever a bank processes a loan, it will check your track record in the Central Credit Reference Information System (CCRIS). The report will include any home or commercial loan, car loans and credit card and personal loans. If the loan repayment record shows irregular repayments, then there is a high chance that the loan application will be rejected.
5. Income criteria not met
This is the most common reason why most loans are rejected by banks. Put yourself in the shoes of the banker: if you earn a net income of RM3,000 per month and the monthly loan repayment is RM2,500, will you lend to yourself?
Remember that you still have other monthly commitments to meet out of your net monthly income. The answer is probably a big “No”.
How are you going to afford to pay back the monthly installments?
This is how a bank determines credit approval based on the borrowers’ repayment capability. Different banks have different credit approval criteria. The banks will look into the borrowers’ existing debt ratio before granting approval.
6. Falsifying financial documents
If you have ever thought of falsifying financial documents or engaging someone to do this for you to get a loan approved, then you better think twice.
If the banks were to discover this, the application will be rejected and it may even lead to a police case.
The banks have ways to verify financial statement. Do not think of doing or engaging a company to do it on your behalf.
7. Leasehold property with less than 30 or 60–year tenure
Depending on the banks, properties with a remaining lease period of between 30 to 60 years or less will not be financed. Banks will view this type of properties as high risk financing, as the property value will drop towards the end of the lease.
8. No proof of income
Banks will always look at the financial documents that you have submitted. If you were to only submit a salary voucher, your loan will be rejected. You also need to submit proof of the source of income.
Documents such as EPF contribution, savings account and income tax declaration where your salary is credited are very important, especially when you submit your income documents.
9. The mortgage officer who processes your loan application
Yes, this is totally beyond your control. The experience of the mortgage officer plays a very important role in the loan approval process.
If the person is new and does not know how to process and recommend a loan for approval, there is a very high chance the application will be rejected. Sometimes because they are new to the bank, the documents collected from the applicants are not enough to support the approval.