Banks can have thousands of reason to reject a home loan application. In some situation it can be unique to the loan applicant only. In some cases, the loan applicant is not even at fault. For those of you who have not submitted your loan application, if you learn why a bank can reject a loan you will be able to avoid these mistakes when you submit your loan application. This is why I have picked the top 10 reasons why a bank can reject your loan from my 18 over years of experience in the mortgage industry.
DEVELOPER OR SELLER IS DECLARED BANKRUPT
Banks will check whether your seller is a bankrupt or under legal proceeding using a system called Credit Tip Off System (CTOS). If a seller is bankrupt, it can be either an individual or even a company under the Malaysian Law a property sale cannot be transacted.
DEVELOPER IS IN THE BANK’S NEGATIVE LIST
Every bank will have their own negative list of developers. It will vary from bank to bank. Banks will have their own specific reason why they blacklist a developer. Some reasons includes the developer is bankrupt, being sued in court or have previous bad experience when the bank finance the developer’s last project.
EXISTING LOAN REPAYMENT IS NOT PROMPT
Whenever a bank process a loan, it will check a system called Central Credit Reference Information System (CCRIS). CCRIS, which is managed by Bank Negara will reflect the borrower’s loan repayment record for the last 12 months. The report will include any home or commercial loan, car loan, credit card and personal loan. If the loan repayment record shows irregular repayments then there will a very high chance the loan will be rejected.
I always encourage a loan borrower to go to Bank Negara to print the CCRIS report before submitting the financial documents to the bank for processing. You can print as many times as possible and it is free.
INCOME CRITERIA NOT MET
Well, this is the most classic where most loans are rejected because of this reason. Look at this fact. If a loan borrower makes a net income of RM3,000 and the monthly loan repayment is RM2,500 . Let’s say you are the lender ask yourself will you lend to this borrower. This does not even include the daily expenses. I guess you will say a big “No”. How is this guy going to afford to pay back the monthly installment? 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.
FAKE FINANCIAL DOCUMENTS
If you think of doing fake financial documents or engaging someone to do this for you to get loan approval better think twice. If the bank finds out the loan will be rejected or even worst it might be a police case. I have come across borrowers who do fake EPF statement. The banks will have ways to verify the statement.
PROPERTY IS IN NEGATIVE LIST
Just like the developer negative list, every bank will also have their own property negative list. This is for completed property. Landslides area, flood prone area, property structure , properties located below high tension wire or even properties which did not obtain strata tile after 10 years are some of the factors the banks uses as a guide.
LEASEHOLD PROPERTY WITH LESS THAN 30 OR 60 YEARS TENURE
Depending on the banks, properties with remaining lease either 30 or 60 years or less will not be financed. The banks will view this type of properties as high risk financing as the property value will drop towards the end of the lease.
NO INCOME PROOF
Banks will always look at the financial documents that you submitted. If you were to only submit a salary voucher your loan will be rejected. You also need to proof the source of income. Documents such as EPF contribution, savings account and income tax declaration where your salary is credited is paramount importance when you submit your income documents.
THE MORTGAGE OFFICER WHO PROCESS YOUR LOAN APPLICATION
Yes, this is totally not your fault. The experience of the Mortgage Officer plays a very important role in your loan approval. If the person do not know how to process and recommend a loan for approval there is a very high chance the loan will be rejected. I have seen and consult many loan borrowers who got their loan rejected by a bank but manage to get approval from another bank or even the same bank but different branch. Sometimes because they are new to the bank, the documents collected from the loan borrowers are not enough to support the approval.
IT’S NOT YOUR FAULT, IT’S THE BANKS APPROVAL CRITERIA
If 1 bank rejects your loan application, is it the end already. The answer is NO. Different banks have different approval criteria and risk tolerance. You might not fit in that bank but it does not mean other banks will not lend to you. Don’t panic when your loan is rejected. Find out the reason behind the rejection and learn how other banks approval criteria and submit to the bank that you have the higher chance of approval.