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clock 14-04-2020
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How to Increase Your Chances of Home Ownership via Credit Evaluation in Home Loan Appraisal

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Is homeownership an elusive dream in Sabah? According to a research paper carried out by Khazanah Research Institute, the median price for the Malaysian housing market, in general, stood at 4.4 times; which exceeds the three times median annual household income threshold for affordability.

This article is contributed by SHAREDA Council Member, Mr Edward Chin Szu Chiang

Affordability, however, is dynamic, which depends on many factors such as the distribution of household incomes, responsiveness of housing supply to effective demand, government policies and so forth. According to the Department of Statistics Malaysia, the percentage of homeownership in Sabah stood at approximately 72% in 2016, with the remaining either reside in rented dwellings or quarters.

Many studies have shown that people in these situations could be assisted by financial counselling/education. Majority of the people want to buy a home eventually, but unfortunately, not everyone is well prepared in securing a home loan. There are many different factors contribute to the approval of a home loan, and the following are some of it amongst many others:

1. Avoid/delay making large purchases

One of the main things that lenders require from borrowers is to have genuine savings. You will need them to pay your down payment, ancillary costs such as legal fees and stamp duties.

What’s even worse than sacrificing your savings to make a big purchase is to take a personal loan or use a credit card. In the event that you cannot pay your bill on time, your credit score and Debt Service Ratio (DSR), will be jeopardised.

2. Using credit cards in a responsible manner

Having a credit card is a huge plus in your wallet - aside from getting pets and offers from different merchants, credit cards make payments easier and convenient. It also helps your credit score, which you need if you plan on taking out a loan to buy a home (or other big purchase).

However, how you use the card makes a huge difference. Financial institutions not only look at your income and expenses but they also look at your credit limit. Whether your card is used or not, your credit limit is still calculated. Oftentimes, your monthly repayment is roughly 5% of your card's limit.

The higher the limit, the lower your borrowing capacity will be as your credit limit is seen as a plausible debt level in the future. What is worse is even having multiple cards or using your credit card beyond the card limit. Ideally, a healthy DSR should be between 30% and 40%, although it depends on the bank.

3. Adequate documentation and honest disclosure

Even with a promising credit score and DSR, a simple thing such as incomplete or forged documentation can negatively affect the chances of securing a home loan. Be sure to have all the correct documentation to be ready for submission.

4. Recommendation to Bank Negara Malaysia

To encourage homeownership, BNM should implement the Capping Policy according to your household income. To further assist, you could implement the open market Automobile Policy to further enhance and improve the price of your monthly car payments. 

In conclusion

Buying a home is a hefty financial decision for most of us as it is a long-term commitment. Hence, by having better understanding of the financing mechanism and perhaps some guidance along the way, the rewarding home-buying journey is within reach.

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