4 Things to Check Before Applying for a Home Loan
If you’re thinking of buying a house, the first step you usually take is checking whether you’re eligible for a housing loan. The rejection rate for housing loans is at 60% in Malaysia (source: Bank Negara Malaysia), which means buying a home can get pretty challenging. Housing loan applications are rejected mainly due to weak credit history and insufficient documentation. Getting your application rejected is not ideal because you won’t be allowed to apply for another loan for quite some time, and you’ll be locked out of the market for six months. With HomeCrowd, you get access to a much more flexible peer-to-peer lending platform for your mortgage loan.
In this article we cover 4 different factors to keep in check before applying for a house loan.
1. Affordability
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Currently, the housing market is overpriced. This makes buying a house quite a challenge to young Malaysians, and it makes it that more important to make sure you’re prepared to buy a house.
The best way to figure out whether you can afford a home is to work backwards and first calculate your monthly repayment figure. Most financial gurus recommend not spending more than one third, or 33% of your monthly salary on your mortgage. If you’re earning RM5,000 per month, then you don’t want your monthly payment to be more than RM1,650. With a figure like this, you’ll be able to afford a home priced at RM430,000 with a 10% deposit, a loan rate of say 3.8% p.a. (with the latest OPR change) and repayment period of 35 years.
If calculating numbers in your head is not your thing, check out this Home Loan Affordability calculator from Maybank.
2. Steady employment or earnings
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In order for your application to be accepted, you need to prove you receive a stable income every month - this is one of the main factors banks will check when considering your home loan application. This means you have steady, regular income through a business or employment.
Banks generally prefer permanent employment when it comes to mortgages. Those who work at large multinationals or for the government are more likely to get their application approved. Those earning an irregular income, whether as a freelancer or a gig worker, may have more difficulties when it comes to getting a home loan accepted. For this reason, HomeCrowd offers a much more reasonable solution to those with irregular income. If that’s you, check out our highly flexible mortgage options designed for underserved millennials that excluded from the traditional financial system. According to PricewaterhouseCoopers (PwC) study showed that by next year, the gig economy is expected to be worth some US$63bil (RM263bil) globally.
3. Healthy amount of savings
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The next thing you need to make sure before applying for a home loan is that you have enough savings to pay for the down payment. If you’re living from pay cheque to pay cheque and are struggling to save money, now may not be the right time to buy a home.
A large savings account works as a great back-up plan in case things get complicated - it’s also useful if you suddenly experience a financial setback such as losing your job or dealing with an emergency. These savings will be able to pay your home loan instalments in the short term as you sort your finances out.
By placing a 10% down payment, you’re showing the bank that this purchase was planned, that you have enough savings and you have good money management skills.
4. Few commitments
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Are you in debt? Do you have several unpaid credit card bills or other consumer loans? If so, you may not be ready to buy a home just yet. An important factor that banks look at when they receive your home application is your DSR (debt service ratio). This is your commitments (debt) divided by your income. If your commitments are too high, your banks won’t grant you a loan since they run the risk of you not being able to complete your repayments.
The general guidelines is to have your debt service ratio below 60% - if it’s higher than that, consider prioritising your debt payments before buying your dream home.
At HomeCrowd, we are able to help you restructure your personal debts through our debts’ consolidation loans product. This will help improve your credit score, get rid of extra monthly payments and increase the likelihood of you getting a low interest mortgage.
Keep these four criteria into account when applying for a home loan. If you’re looking for an alternative option that is more accessible to freelancers or people with irregular income, get in touch with us and we will help you make sure you get the same chances of owning a home as someone in regular employment.
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*HomeCrowd is an impact enterprise that helps underserved millennial by using a holistic data-driven credit scoring that grants them access to a peer-to-peer (P2P) lending platform for mortgage or debts consolidation loans
We are the 1st company in Malaysia to be licensed and regulated for P2P lending for mortgage & consumer financing by the Kementerian Perumahan dan Kerajaan Tempatan (KPKT)/ Ministry of Housing and Local Government
10 March 2020 | By HomeCrowd team
