The truth is, there’s always a risk of rejection during the loan application process. While you can’t guarantee a 100% approval rate, following these four methods can significantly improve your chances of getting approved.
Method 1: Establish a Good Credit History
When reviewing a home loan application, the bank will examine your credit history to assess your financial health and repayment capacity. Banks typically refer to CCRIS and CTOS reports to evaluate your creditworthiness. This makes having a solid credit record essential. To maintain a good credit history, ensure you pay your credit card bills and loans on time, and avoid accumulating excessive debt. Regularly check your credit reports to ensure they are accurate, and correct any errors to prevent them from affecting your loan application.
Method 2: Understand Your Debt Service Ratio (DSR)
Banks usually assess your repayment capacity through the Debt Service Ratio (DSR). If your DSR is too high, the bank might reject your loan application. In Malaysia, a desirable DSR range is between 35% and 40%. DSR is calculated based on your net income and fixed debts. To lower your DSR, consider reducing credit card debt or increasing your income. Ensure your monthly expenses are within a manageable range to avoid overburdening your finances, as this could lead to loan rejection.
Method 3: Ensure Your Loan Application Documents Are Complete
Banks require various documents when processing a home loan application. Missing or incorrect documents could lead to rejection. To ensure your application is complete, prepare the following:
- Loan Application Form: Make sure it's filled out completely and without errors.
- ID Copies: Provide clear copies of your identification.
- Income Proof: Include 3 to 6 months of payslips, bank statements, and annual tax returns.
- Sale and Purchase Agreement and Receipts: Provide copies of the sale and purchase agreement, along with any booking forms and receipts.
- Other Documents: Such as Employees Provident Fund (EPF) statements, income tax reports, and any fixed deposits or investment statements.
Ensure all documents are accurate and complete to avoid application rejections due to procedural issues.
Method 4: Establish a Stable Employment Record
Banks often check your employment record to ensure you have a stable source of income. If this is your first time applying for a home loan, banks typically prefer that you have at least 3 to 6 months of work history with consistent contributions to EPF. If you're self-employed or a freelancer, banks may require additional income proof. Maintain complete business records and demonstrate that your income is stable. Additionally, if you've recently changed jobs, even if the new job pays more, it doesn't necessarily guarantee easier loan approval. In this case, you should provide employment proof and explain to the bank that your new job offers a higher salary, thereby increasing your repayment capacity.
Home loan applications can be rejected for various reasons. However, by establishing a good credit history, maintaining a reasonable Debt Service Ratio (DSR), ensuring your application documents are complete, and having a stable employment record, you can significantly increase your chances of loan approval. Remember, thorough preparation and financial discipline are key to successfully obtaining a home loan.
