So you think your have a clean CCRIS record and a current Debt Servicing Ratio (DSR) which is below 35%, surely your mortgage application will get approved without any hassle right?
You still can face rejection from bank(s).
1) Inexperienced bank staff/officer
He does not approve your loan per se, it is the guy at bank’s HQ. He only acts as a conduit between you and the guy who approves hundreds, if not thousands of loans at KL. However, how he conveys the application to the HQ guy is of utmost importance. If the staff do not know how to process by missing out crucial documents for submission, then you get rejected buta-buta. This is a gross mistake. On the other hand, subtle mistakes could be things like not highlighting details in your income statement especially, on how you want the approver to interpret the way you want it to be interpreted.
Solution to 1)
Do you own homework by avoiding gross mistakes due to inexperienced bank staff, although we think bank should have trained them properly during job on-boarding to put them in a customer facing position. For instance, EPF statements is almost a must nowadays, on top of salary slip for the employed. Or, that rental income should be substantiated by tenancy agreement and cash flow statement.
Subtle mistakes can be avoided if you specifically instruct the officer to tell he approver how to interpret your document. For example, I encountered a case whereby the applicant settled his 2 car loans before applying for new house loan because having that 2 car loans will surely burst his DSR. However, I advised him to be aware that since the settlement of the car loans only occur recently, his CCRIS record will still show him having these monthly commitments. Therefore, I asked him to submit his car loans settlement statements on top of other compulsory documents. This kind of foresight saves him time and gets him that loan in one try, rather than being rejected then only figure out how to appeal. Because sometimes, you won’t even know the reason for rejections as banks are not obligated to tell you unless the bank staff is kam cheng with you. That is the kind of value you get from engaging an independent financial adviser.
Sometimes, the staff is so incompetent but he is the only person in charge of mortgages in that bank branch. Chances are, there are other branches in your city, so why not try another branch instead?
2) Differing Bank Approval Criteria
Recall that we are advised to apply to at least 3 banks when applying for a mortgage so we can choose the ones that gives us the best offer?
Well, it is also true that in case any one bank rejects us, we still have backups. Because when it comes to the details, different banks have slightly different approval criteria, while still sticking to the general guideline by BNM. For instance, some banks take 70% of rental income, some banks take in full amount.
Here are 2 real life scenarios
Bank A gives you lower interest rate compared to Bank B, but Bank A needs to call in to your company HR to verify your employment. However, your company HR does not entertain this kind of request. So Bank A requested you provide letter of employment, but you’ve been working in this company for 10 years and have no idea where is that document anymore. Therefore, facing these challenges you have to contend with Bank B offers.
You have rental income to cover your existing properties’ mortgage repayments so it won’t hit your DSR when applying for new mortgages. Bank A offers the lowest interest rates, however, they need BOTH tenancy agreement and cash flow statement so support your claim. You rented it to a relative and hence all payments are made in cash and never gets recorded in any statements. You also never issue any receipts. Therefore, Bank A rejects your application because lack of supporting documents. On the contrary, bank B only requires you to have your tenancy agreement, so your best option now is to grab Bank B offer.
Solution to 2)
Certain things not within our control so no point trying to change it. But what we can control is to properly document everything for future reference.
3) Developer is in bank’s blacklist
All banks have their own black list of developers for reasons like developer’s directors having pending litigation cases or own bad experience being panel to the developer in their previous projects. Nothing much you can do about it besides checking with other banks.
4) Developer’s project is in bank’s blacklist
Similar to 3) above, this applies for completed properties. For example, we know that AIA Fixed Mortgage Loan has pretty strict criteria, but generally it could be one or more of the reasons below:
- No strata title after 10 years (very common)
- Natural disasters prone area, such as landsline or flood or unstable foundation
- Vicinity to high voltage cables or TNB stations
5) Expiring Leasehold Properties
It is no secret that banks refuse to finance these. Leasehold title properties’ value tend to normalize down when approaching end of their lease. Even with 30 or 60 years remaining banks are pretty cautious.
The solution (at least for Selangor), is to extend the lease. Read article by StarProperty here.
6) Developer’s or Seller’s Bankruptcy
Lastly, this is self explanatory. It is a SOP (Standard Operating Procedure) for banks to refer to Credit Tip Off System (CTOS) in order to check whether your seller is a bankrupt or under legal proceeding. Bear in mind CTOS is not a blacklist, it is just a consolidation of all publicly available information which provides unbiased reference to anyone having access to it. In a nutshell, is an entity, whether an organization or natural person, is bankrupt, then under the Malaysian Law a property sale cannot be transacted.