Will DSR Affect My Loan Approval?
You might be wondering what DSR is and how this affects my property loan approval.
Let's understand what DSR is first. DSR stands for Debt Service Ratio. It is a calculation of a person's debt against his monthly income. This is one of the methods the bank will use (apart from CCRIS (www.miichaelyeoh.com/2017/07/what-is-ccris-report/)) to determine whether or not they should lend to this person.
Let me share with you the calculation formula:
Debt X 100 = DSR
600 X 100 = 60%
The DSR for this person is 60%. So, what is the DSR of the banks? When I was in Standard Charted Bank 20 years ago, the bank used 1/3 income criteria or 33% to determine loan approvals. At that point in time, the bank used gross income as CCRIS was not born yet.
After CCRIS was introduced by Bank Negara, the banks could now check on an individual's borrowing with other banks. From that point on, the banks increase DSR to 50%. This now means that if a person's total debt is RM 500 and his gross income is RM1,000, his loan application can be approved. Please remember that for banks, the higher the DSR is better but for individuals, lower is better.
Bank Negara later introduced a new calculation method. Income calculation now is now to be based nett instead of gross. Will this affect the loan approval? As I have mentioned in my seminars, if you know how the banks work, the new calculation method will not really affect loan approval. Some banks have adjusted their DSR up to 85%. Most banks have tiered their DSR based on the value of the property and also monthly income.
The mistake most borrowers tend to make is that they do not calculate their own DSR and also neglect to research different banks' DSR approval percentage. Borrowers will submit to multiple banks hoping that any one bank will approve his/her loan application. Is this the right way to go about things? You might possibly end up in the statistic of bank rejection, because if one bank rejects you, other banks will know about it.
Different bank have different DSR ratios. You must go to the bank that has the highest chance for approval. If your DSR is 60%, you should go to the bank which has a higher than 60% DSR approval.
What happens if a borrower breaches the DSR criteria of a bank? In certain banks, if the borrower can proof that he/she has high savings amount, the banks may consider approval. This of course is not a norm and happens usually on a case to case basis.
I hope this article will assist you in getting your loan approved. Loan approval is not as easy as 20 years ago. It is going to be tougher but if you understand how the system works, you have a better chance in obtaining approval.
Read more of my articles at www.miichaelyeoh.com.
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