Owning your first home is a great achievement, especially recently, where the prices of property exceed the income of the people. Most people start to think about buying their first home when they get married, to accommodate their growing family.
Obtaining a home loan can be easy if you know what to do, and how to prepare for it. However, if the your property is in an undesired location, then getting your loans rejected or being offered unattractive loan packages may be expected.
There are various factors that can result in a home loan being rejected – from bad credit score due to defaulted or late payments from other credit facilities, to low debt service ratio (DSR). However, even if you have stellar income and credit report, you may still be at risk of having your property financing rejected by the banks, due to the following factors:
1. Types of landIf you find yourself unable to get a loan for the property you want to buy, it may be due to the land tenure. If the property you are buying is a freehold property, this probably won’t be a problem.
However, forleasehold(with less than 60 years left) andMalay reserved land, it may be difficult to secure financing from certain banks. These lands are considered high risk for banks as they are difficult to resell in an auction, due to its restrictions.
For example, if you purchased a property on a 60-year leasehold agreement, it may be difficult to refinance or resell it 15 years later, as the balance tenure is only 45 years.
As for Malay reserved land, if the loan is in default by the owner, it will be difficult for the banks to auction it, as only Malay buyers will be eligible to purchase.
2. Price of propertiesBelieve it or not, most banks are skeptical about giving out loans for properties below RM100,000. Even if you manage to find a low-cost property that costs less than RM100,000, it will be difficult to secure financing for it.
Though the repayments may be low for properties in this price range, the risk of defaulting is generally higher. Hence, banks would rather not take the risk for the minimal interest earned.
3. Developer of the propertiesIf your housing loan is rejected by the banks due to this reason, you can treat it as a blessing in disguise.
Most banks will do a Credit Tip-Off System (CTOS) check on the developer or seller to make sure the company or individual is not under bankruptcy. If the result is not a favourable one, you may not be able to complete the house purchase transaction.
This is to safeguard the bank and also you, from dealing with an incomplete project due to the developer’s bankruptcy.
Most of the developments by MBF raise the banks’ red flags due to the company’s controversialfinancial turmoil
when the company fell in the late 90’s.
4. LocationAs everyone is adamant in buying a Klang Valley property, it’s time for a reality check. Not all properties in the Klang Valley are good for investment.
You may find yourself unable to get a loan for properties in certain areas due to various reasons.
Some locations may have slow movement of appreciation or due to a history of landslide – namely places like Bukit Antarabangsa.
Some other areas that are not favoured by lenders are certain housing areas in Rawang, Puncak Alam, Sungai Buloh, Puchong, Semenyih and Bandar Mahkota Cheras – to name a few. The reasons for the lack of enthusiasm by the banks to approve loans for these areas are the low marketability, occupancy, and increasing cases of auctions.
Some of the areas frowned upon by bankers due to natural disasters like landslide and flood are certain neighbourhoods in Batu Caves, Hulu Klang, Ampang, Wangsa Maju, TTDI Jaya in Shah Alam and Bukit Gasing.
5. Maintenance and upkeepIf you find an affordable property in a hot location, don’t celebrate yet. There could be a lot of reasons why the property is at that price point.
Most banks are not willing to approve home loan for old properties (more than 10 years) especially if it is badly managed and maintained.
There have been a number of properties in a good location that buyers find difficult to obtain a loan for – namely, Palm Court Condomimium in Brickfields, a few properties in Batu Caves, Perdana Residences in Selayang and De Tropicana Apartment in Kuchai Lama.
There are many more properties that fall under this category. One factor that new buyers must look out for before deciding to buy a property is the surrounding area. Certain properties that are located too near high-tension cables (Sri Sentosa Apartment, Taman Sri Sentosa), or have bad parking access (Palm Spring Condominium, Kota Damansara) may face difficulties in getting financing, too.
6. TitleMost property buyers don’t consider the status of the property title when deciding on a property. However, this is important as it may be the reason why your home loan did not go through.
A title deed is a document showing the land registration number. The property title starts with the master title under the developer and later on will be split into individual (for landed properties) or strata titles (for non-landed properties such as condominiums and apartments).
These titles will grant the owner of each unit a title number and banks will usually expect buyers of sub-sale properties to have these titles. If a property does not have an individual or a strata title after 10 years, most banks may not want to finance the property, leaving the buyers with limited options when it comes to financing.
Deciding to buy a home is not just about affordability as there are various factors when it comes to getting a home loan approval. Unless you have a few hundred thousand ringgits in cash, you may want to consider the above factors before making that jump to buy a home.