How Much Should You Earn to Buy a Property?
Did you know the rejection rate for housing loans in Malaysia is skyrocketing? According to the Real Estate & Housing Developers’ Association (Rehda), the rejection rate is as high as 60% and the main problem centred for this situation is that the applicant is not eligible to apply for the housing loan, causing the property sales to remain stagnant.
You may not know this but many property buyers lack important and needed information on how to get a loan, successfully. Contrary to popular belief, the amount you’re able to apply is not solely based on your salary, there are several other factors taken into consideration when a bank assesses your eligibility for borrowing the amount you need to buy your dream house.
Before we get down to it, here’s a tool to help you calculate your housing loan eligibility.
Now, let’s get started!
1. Do you keep your Debt Servicing Ratio (DSR) below 70%?
DSR is a percentage of the debts you are servicing over the income you earn.
Property buyers, especially newbies don’t understand how DSR works and lead them to rejection. As simple as it sounds, once you get rejected by loan, you’re prohibited from applying for the next months. Being locked out from property market is not something you’d want especially if you’re aiming for a property in a hotspot area.
Different banks will have different methods of determining your DSR despite it being based on the same information that you provide. To find out more on your DSR, you can read the article How Much You Can Borrow Based On Your DSR.
2. What's your risk profile?
Other than your credit records, banks would assess your creditworthiness based on many things which could include your job stability, spending habits and etc. The likelihood of default which is your inability to pay off your debts or service it (pay interest) is an important factor when you’re borrowing a mortgage loan.
3. What's the value of the property?
Properties that are on the market can be overpriced and so banks need property valuators to confirm that the property you are applying a loan for is worth the money that you are paying. This is done because, in the event of your default, the banks would still be able to recoup the amount you borrowed by reselling it back into the market.
Before you decide to buy a property make sure you do plenty of property research.
4. Do you know the maximum Loan-to-Value (LTV) ratio or margin of finance that you can access?
Commonly, 90% LTV ratio can be anticipated on a Malaysian residential mortgage loan. But if you hold more than two existing housing loans then the LTV ratio on the following housing loan is lower and is capped at 70%. Meanwhile, LTV ratios are even lower for foreigners as these are restrictions to those that have fewer attachments to Malaysia.
5. Age isn't just a number when it comes to getting a loan
Loan repayments period is usually up to 35 years from the first day of your loan or until you’ve reached 65 or 70 years of age (depending on the bank), whichever occurs first. A younger person (e.g. 21 to 25 years old) might have a higher chance of getting the house loan approved compared to somebody in their 60s.
However, this does not mean if you’re old, you won’t be able to buy a house. If the amount of loan that you’re applying for is small, banks would put it into consideration.
6. How many dependents do you have?
The number of dependants affects your eligibility because they will be spending portions of your income. It will also affect your capability to pay off your housing loans. If you’re a husband who has a housewife and five children dependent solely on your salary, it may raise a concern with banks.
7. Choose the right joint applicant(s) - if you're taking this route
If you're going with a housing loan which is supposed to be borne by both you and your joint applicant(s), the banks will assess them to judge your joint creditworthiness before approving the loan. Your relationship with the co-applicant may also matter, it is less likely for parents and children or spouses to have disputes compared to other types of relationships such as siblings or friends.
8. Do you have a stable job?
This information will help banks determine whether you have a stable income. People with full-time, fixed salary paying jobs are considered more stable. As opposed to those who own their own business, which is considered less stable as there is no job security and as their income is not fixed.
9. How were your past relationships with the banks?
Applicants who are loyal customers of the bank they are applying to may have an added advantage. But if you’re not, it’s not a concern as long as you do not have significant conflicts with any of the banks (e.g. CTOS or blacklisted from banks).
Before you jump into the property market, make sure you have all the crucial information first!
You can use the Housing Loan Eligibility Calculator to find out what the maximum you can borrow on your mortgage loan is before you go house hunting, followed by finding attractive loans that would be available to you on your new house using our Home Loan Comparison tool.
Other than that, when you’re purchasing a house, it’s necessary to have enough money to pay the down payment, valuation fees, documentation fees, legal fees and stamp duties on the housing loan. Some banks can provide up to 5% (for insurance) and 2% (for legal fees) – an additional margin of finance to finance your valuation and documentation costs.
Happy hunting and good luck!