Ways to get your home loan rejected
Home loan application today can be tedious and hassle especially the application and approval process with many possibilities of issues springing up and causing your application to be rejected in the pile. Besides, the requirements have grown stricter over the years, ever since the U.S. subprime crisis in 2008. Although you tried using the housing loan calculator and ready to commit for the big ticket item but you still get rejected. Hence, as home loan borrower, you will need to prepare more than ever. Here are some ways you could be sabotaging your home loan application.
Bad paymaster
Lenders often use your ability of paying bills on time as a benchmark when it comes to accessing your loan repayment ability. If you have been missing out on your monthly bill settlements will lower your credit score. If your credit score is lower than expected by the lender, your chances are slimmer to secure a home loan.
Whenever lenders process a loan, the financial institution will check your credit score through the Central Credit Reference Information System (CCRIS). It is managed by Bank Negara that will reflect your loan repayment record over the past 12 months. The report contained your credit behaviour and pattern for the past year listing out every credit product you have taken up or applied for such as hire-purchase loans, business loans, personal loans and credit cards.
If your payment pattern is irregular, the bank may give you a low credit score turning your home loan application being rejected is high chance. Lenders like to see a clean credit record and evidence of maintaining payments to previous lenders and service providers. If you are planning to get a loan in the future, make sure you spring clean your record by paying your bills vigilantly and promptly. Plus, CCRIS only store information of your active credit up to 12 hours. You can apply for a loan again a year later after you’ve cleaned your CCRIS report.
Apply for credit that you are not qualified for
CCRIS allows lenders to track your loan submissions and rejections to any other lenders. If a bank sees that more than one lender has rejected your loan application previously, they might consider you a risk to give a loan to. If a lender disapprove your application, check your CCRIS account and find out the reasons your submission is rejected and work on improving that aspect before applying for your next loan. Do your research properly and apply to a lender that would be able to cater your financial conditions.
More debt, no income
Debt-service-ratio (DSR) is a ratio of your net income and your monthly credit commitment. Credit providers are required to observe prudent debt service ratios in their credit assessment to ensure households have sufficient financial buffers to protect them against rising costs and unexpected adverse events.
This is part of the effort taken by Bank Negara Malaysia (BNM) with this calculation done by comparing your total net income (gross income minus EPF contribution and income tax) against your total credit commitments, such as monthly repayments for all the loans you have applied before. The standard DSR limit adopted by most lenders is between 60% to 70%. The higher your DSR, the riskier for your home loan application to get rejected.
Missing important documents
Credit providers require similar set of documents to process your application. Click here to check out the documents required.
For borrowers who are unable to produce the documents, the chances of your loan being approved will have higher chances to be rejected. Some may be inclined to the idea of creating fake financial documents or engaging a third party or syndicates to get this done for your home loan approval. Once the lender finds out that you have forged these documents, your home loan will get rejected and might likely to get behind bars for forgery.
Income instability
Insufficient or instability income might jeopardize your home loan applications. If you are planning to get a loan at the same time as switching jobs, this will affect your application. Generally, a bank will request for your latest three to six months pay slips and bank statements to prove consistency. Employment stability is one of the key components that lenders look for when determining if you qualify for the home loan. Continuity of employment and how long you have been with your current employer is also taken into account when assessing the security of your income and your ability to repay the loan. Stronger application will often show individuals to have worked for their current employer for at least two years or more. As for business owners, it is essential to show proof that business still generating consistent revenue and profit.
