For Sale By Owner Tips

How Are Loans Processed?

Almost all home buyers in Malaysia don’t buy home in cash but usually rely on bank financing or Employee Provident Fund (EPF). Buying home is most important decision and usually once in a lifetime for most of Malaysians.  Therefore, home loan is normally the biggest financial transaction ever made in life time.  There a many attractive packages are offered in Malaysia either Conventional or Islamic types.  However both applications must go through a certain procedures structured by lenders and under supervision of Bank Negara Malaysia.  The banks are required to be prudent in their lending activities in order to protect the interest of depositors and shareholders.

So it is important to understand the process taken by banks before loan application can be approved.  There are 4 assessments normally taken by banks as below.

Part 1:  Collect and compile all related documents from borrower

All banks are required to compile and keep credit files on all their borrowers.  The files should be up-to-date and adequate on information on the credit-worthiness of borrowers.  It is important for effective supervision of credit facilities granted.  Below are essential processes taken by banks before approve your home loan.

a) Applicant’s Personal Data

b)  Supporting Documents

• Bank account Statement

• EPF Statement

• Mortgage loan statements (for refinancing)

• S & P Agreement

c)  Income Substantiation

• 3 Months pay slip / letter of confirmation from employer

• Form J / EA/ BE / B

• Tenancy Agreement

• Business Registration Form (Self – Employed)

• 6 months current account statement

Part 2:  Applicant selects Loan Package

There are many packages available in Malaysia Example Zero-Entry Package, Hybrid Package and more. Borrower should be given clear information by the bank and enable applicants to choose right package, repayment term and loan structure.  Below are basic information about the packages.

1. Fixed-Rate – Constant rate and protect borrowers from interest rate hikes

2. Investor’s Deal – Loans with zero or low lock-in periods

3. Low start loan – Offers high margin of finance and low repayments during the initial years.

4. Zero-Entry Cost – Lender pays for loan documentation fee, valuation fee and also stamps duty.

5. Islamic Package – Based on Islamic principles

6. High- Flexi Loan – Allows pre-payment and withdrawal of prepaid amounts anytime

Check the package details from banks before to apply home loan.  Make comparison between packages for every bank before you make decision.  Decision in your hand!

 Part 3:  Repayment Ability Assessment

Bank need to ensure that the applicant has the ability to repay the proposed loan.  Bank needs to know the applicant’s existing financial commitments example like vehicle hire purchase loan, renovation loan, unsecured overdraft facility and other loans.  Bank will approve application based on the past and current earning to determine the applicant’s repayment ability.  Based on the given information, then bank will calculate applicant’s repayment ability by using Debt Servicing Ratio (DSR) method and every bank’s computation is differs.  See below simple formula;

Debt Servicing Ratio = Total Monthly Commitment / Monthly Income

You in trouble If DSR is too high, some banks may accept but with personal guarantee from 3^rd party or alternatively the bank may propose a lower loan.

Part 4:  Track Past Borrowing Record

Bank will not take any risk to approve loan to applicants with bad reputation in their history.   So banks will check the applicant’s past and existing borrowing track record.  So please make sure you have a clean record for below activities:

• Credit Card Accounts

• All Borrowing Accounts

• Financial Litigation Suits

• Current accounts – Returning checks ,over-drawing of limit and etc

This is basic information how the loans are processed. For details and up-to-date information, please check with banks.  We will provide more helpful information and tips in next topics .  Visit us regularly at www.landlord.com.my.