How is your Application Evaluated?
Even though the situation of an applicant does not fully determine the acceptance or otherwise of his/her Property Financing application, it is useful to be aware of the factors considered by the bank officer upon evaluating your application. Generally, the approval criterion considers and is affected by three types of factors: the developer and the property, your financial situation and credit score, and the status of the economy and the bank attitude. The following briefly discusses these factors:
- The legal stand of the developer: If the developer has filed for bankruptcy, being sued in a court, or did not show commitment in a previous involvement with the bank, the bank will obviously be reluctant to approve your application.
- The risk level of the property: Banks do not favor properties in landslide or flood-prone areas, or properties with poor structure or foundation.
- Your employment history and credit score: Financiers like to see stability. Steady employment with a single employer for several years is a positive factor. On the other hand, late credit card, rent, or mortgage payments are not. The Central Credit Reference Information System (CCRIS), managed by BNM, shows the applicant’s financing payment record for the last 12 months. Checking the CCRIS report before submitting a Property Financing application is a good idea.
- Your income level: Banks want to see a high chance of paying the financing over the long tenure. The Debt to Service Ratio (DSR) gives an indicator that your income is likely to enable you to pay the financing. Your ongoing commitments towards other financiers have to be considered too, as they subtract from your financial liquidity. An income proof, accompanied by tax declaration documents, EPF contributions, and savings account statements all count in favor of your application.
- The status of the economy: Banks do not usually approve many property financings when the economy of the country is struggling or going through a recession. For example, US banks became very stringent in their approval criterion after the 2008 financial crisis.
- The bank’s risk appetite: Banks differ in their willingness to accept risk. Their approval criteria reflect how careful or open they are towards your application.
- “9 Reasons why banks reject your home loan,” by Michael Yeoh, viewed at
iProperty.com.my, on Mar. 28, 2020.
- “How Mortgages Work,” by Lee Ann Obringer and Dave Roos, viewed at
howstuffworks.com, on Mar. 28, 2020.
- What is the difference between conventional financing and Islamic financing?
Under conventional financing, your outstanding loan consists of principal plus the interest charged on you. The interest is actually the financial institution's cost in obtaining the funds. Islamic financing works on the concept of buying and selling where the financial institution purchases the property and subsequently sells it to you above the purchase price.
- How much can I afford?
This depends on your income and other financial obligations. As a rule of thumb, most house buyers buy houses that cost 1.5 and 2.5 times their annual income. For example a house buyer earning RM40,000 a year would buy a house between RM60,000 and RM100,000. Furthermore, the monthly installment should not exceed about 1/3 of your gross monthly income. In assessing your payment capability, the financial institution would also take into account your other debt payments such as car financing, personal financing and credit cards.
- How much can I apply to?
This depends on the value of your property, your income and your payment capability. Margin of financing can go as high as 95% (inclusive of MRTA). The higher the margin, the higher you will have to pay per instalment. Also, at a given rate, a shorter tenure will require you to pay higher instalment.
- How long does it take to process a financing application?
It usually takes about one to two weeks for your financing application to be approved from the time you supply full documentation. You should ask the financial institution for the checklist of documents required for the application to avoid any delay.
- Why do I need a valuation?
A valuation is required if you are buying a completed property. The financial institution requires a valuation to ascertain whether the property provides sufficient security for the financing given. It also provides an indication that the property is worth what you are paying for.
- Do I need to appoint a lawyer? Can I choose my own lawyer?
Yes. You need to appoint a lawyer to draw up your financing documentation. Normally, the financial institution will provide a panel of lawyers who are familiar with their documentation requirements for you to choose from. If you prefer to engage your own lawyer, you should discuss this with your financial institution.
- Who pays for the legal fees?
Generally, legal fees are borne by the buyer. However, certain developers and financial institutions may offer to pay the legal fees on the legal documentation as part of their marketing package. In addition, some financial institutions also extend financing for the financing documentation fees.
For more information/clarification on the above, please contact the nearest MBSB Bank branch or sales personnel.