Before starting out in search of your perfect home you should check what your maximum loan eligibility is. This is to avoid disappointment at the final stage of the process when you find out that you are not eligible to borrow the full amount required to make the purchase.
Contrary to popular belief, the amount you are able to borrow is not solely based on your salary, several other factors are considered when a bank is assessing your eligibility for borrowing the amount you need to buy your dream house.
These are a few factors besides salary that determines your loan eligibility:
Your Debt Servicing Ratio (DSR)
DSR is a percentage of the debts you are servicing over the income you earn (DSR= commitment/income). Different banks will have different methods of determining your DSR despite it being based on the same information that you provide.
Other than your credit records, banks would assess your creditworthiness based on many things which could include your job stability, spending habits and etc. The likelihood of defaulting which is your inability to pay off your debts or service it (pay interest) is an important factor when you’re borrowing a mortgage loan.
Value Of The Property
Properties that are on the market can be overpriced and so banks need property valuators to confirm that the property you are applying a loan for is worth the money that you are paying for. This is done because in the event of your default, the banks would still be able to recoup the amount you borrowed by reselling it back into the market.
The Maximum Loan-to-Value (LTV) Ratio Or Margin Of Finance You Can Access.
Commonly, 90% LTV ratio can be anticipated on a Malaysian residential mortgage loan. But if you hold more than two existing housing loans then the LTV ratio on the following housing loan is lower and is capped at 70%. Meanwhile, LTV ratios are even lower for foreigners as these are restrictions to those that have less attachments to Malaysia.
Loan repayments period is usually up to 35 years from the first day of your loan or until you’ve reached 65/70 years of age (depending on the bank), whichever occurs first. A younger person (e.g. 21-25 years old) might have a higher chance of getting the house loan approved compared to somebody in their 60s.
Number Of Dependants
The number of dependants affects your eligibility because they will be spending portions of your income. It will also affect your capabilities to pay off your housing loans. If you’re a husband that has a housewife and five children dependent solely on your salary it may raise a concern with banks.
Your Joint Applicant(s)
The housing loan which is supposed to be borne by you and your joint applicant(s), thus banks will access them to judge your joint creditworthiness before approving the loan. Your relationship with the co-applicant may also matter, it is less likely for parents and children or spouses to have disputes compared to other type of relationships such as siblings or friends.
Nature Of Business Or Profession
This information will help banks determine whether your have a stable income. People with full time, fixed salary paying jobs are considered as more stable. As opposed to those who own their own business, which is considered less stable as there is no job security and as their income is not fixed.
Past Relationships With Banks
Applicants who are loyal customers of the bank they are applying to may have an added advantage. But if you’re not, it’s not a concern as long as you do not have significant conflicts with any of the banks (e.g. CTOS or blacklisted from banks).
Other than that when you’re purchasing a house, it’s necessary to have enough money to pay the down payment, valuation fees, documentation fees, legal fees and stamp duties on the housing loan. Some banks can provide up to 5% (for insurance) and 2% (for legal fees) additional margin of finance to finance your valuation and documentation costs.
You can use the Housing Loan Eligibility Calculator to find out what the maximum you can borrow on your mortgage loan is before you go house hunting.