Be aware of the traps that may cost you your mortgage application
By Yuri Azrani
We have all heard of the horror stories from our uncles, our colleagues or from just about anyone wanting to buy a home. They show up at the bank with all the relevant documents and, BAM! Loan application rejected.
They are left wondering what went wrong.
Many things in your daily life could ruin your credibility, and once that’s gone it won’t be easy securing a loan.
Pay attention to these common factors that affect your loan ability and you may just save yourself from a slew of rejected applications.
1. Late payment of bills will affect your credit score
A credit account or credit card can be the best thing ever when you’re on a spending spree, but this could also be your bane at the end of every month.
Regardless of how heartbreaking it can be, you MUST pay your credit card bills on time.
Why does this matter? Because this will be a major determinant of your credit score.
The score system tells how well you manage your credit accounts. The lower your score, the less trustworthy you are to loaners and banks.
On-time bill payments will influence your score; the sooner you pay the better.
2. You have more credit cards than you can afford
Having many credit accounts to your name may increase your spending power, but it could destroy your loan ability.
Each time you apply for a loan, the lender will most likely conduct a credit inquiry. This gives the lender a rough estimate on how well you manage your debts.
Seeing mountains of credit accounts tied to your name alone may just frighten the lenders enough for them to reject your loan application.
3. Try not to spend over your credit limit
Credit utilisation gauges how much of your credit limit is used. A general rule of thumb is don’t spend more than 30% of your limit. So if your limit is RM10,000, try not to spend more than RM3,000.
Be a tad more frugal. Spending more than 30% can raise alarm bells when you apply for a loan.
4. Old is gold when it comes to your credit accounts
Just like your old car that has seen better times, you may be thinking about getting rid of that old credit card or account.
Stop right there. Hold on a bit longer to those accounts. One huge factor in a good credit score is your credit history, essentially how long you’ve managed that account.
The longer you maintain an active credit account, the more responsible you seem to the lenders. Old is gold when you show you can manage long-term loans and are able to make repayments.
5. You jump from job to job too soon
Variety is the spice of life, but take your time at your job. Hopping from job to job or employer to employer too soon can pose a threat to your loan application.
Banks and other lending agencies place a high stake on job stability, observing an applicant’s working consistency and gauging the security of their loans. Some banks even impose a condition that a person must be tied to a workplace for at least three years.
6. Consistent Rejection
As vague as it sounds, this is quite a common occurrence. Just like trying to get a boyfriend/girlfriend during your younger days, there is no doubt you’ve had to deal with the dread of rejection. In terms of loans, consistent rejection in a short amount of time may pose a major long term issue.
If you’ve been rejected by a lender several times before, this could jeopardise your future attempts as well. See it from the eyes of the lender, if a large percentage of your loan applications ended in failure, wouldn’t the current lender be weary of you as well?
It is advised to wait for some time after being declined before applying for another.
7. Being a guarantor for someone financially unsound
Relationships are the most meaningful things in life, but never let the maintenance of these relationships inhibit your goals. Before being a guarantor for another person’s loans, make sure he or she is trustable enough to handle that responsibility.
A guarantor is just what its name says, a guarantor co-signs a loan with the original applicant. The guarantor is responsible for assuring the payment is reimbursed. In any case the applicant does not manage to make the payment, this could harm your credibility in future transactions or loans.
8. Faulty Documentation
Papers, forms, documents, files, these are the modern day essentials in every transaction, even from the day you were born your name was written on a piece of paper. If anything goes wrong with those papers, it could wreck your life.
Same goes with loan applications, make sure every detail is spot on, double, or even triple check to assure you’ve got your facts right. Small mistakes, typos etc. can play a major role in hindering your progress as it might cause your information to be void.
Most importantly, stating false information or lying on your documents is a despicable act that could end your career if exposed and is borderline illegal. Be truthful in your papers and be the honest person your parents always wanted you to be.
9. You’re not making enough money yet
Say you’re applying for an RM300,000 loan which comes up to a monthly payment of RM1.500, all while your monthly income only hovers at RM2,000. Without a second thought, the lender declines your application.
When you apply for a loan, income will be a major determinant. The lender will evaluate whether or not your income is sufficient to make the monthly payment while also taking your personal needs into account. This is because the lender needs assurance that you can manage the payments and so that you don’t starve to death. Be patient, get that pay raise and soon enough you’ll be able to.
10. Maybe you’re growing old
Age can be another factor in loan applications. The closer you are towards retirement, there is a chance lenders may not approve of your loan. Once you hit retirement there’s no steady income, in turn there’s no guarantee for the lenders.
Refer from Starproperty.my
Having a low income does not mean you cannot afford a property. A fresh graduate could start purchasing a home as early as three to six months upon graduation, according to Harith Faisal, property investor and author of Hipster Hartanah.
His definition of hipsters come from Generation Y, commonly known as middle-class youngsters who choose to live in luxury and take pride in being offbeat.
In his talk at StarProperty.my Konvensyen Hartanah, Faisal shared the insights on how young hipsters can purchase their first property.
“Securing a down payment of RM10,000 is crucial in buying a first home, which would make up 10% to 15% of the price of your home.
“The time wasted not securing a house is also value wasted over time,” said Faisal.
He advised that one should always live according to their financial limit and never overspend.
“Financial freedom occurs when one’s passive income could be used to cover monthly dividend for a property and also being free from debt,” said Faisal.
“Most youngsters live by the rule of “You only live once” (Yolo) and spend their salary on wants instead of needs.
“But the true formula in purchasing your first home is to live by the rule of save, invest and spend afterwards, as well as save, invest and make property an asset.
“We need to invest because of the inflation rate in Malaysia that keeps increasing,” said Faisal.
There are lots of ways to invest, from property investments, stock exchange, business to bank trust funds.
According to Faisal, it is important to have a minimum of two sources of income from the investments.
He shared his personal journey in property investment, which started off as a property investor by purchasing a sub sale property at the age of 24 when he was a fresh graduate. He now strived to educate the younger generations on property purchasing.
His talk, titled “Hipster Hartanah: Bajet Orang Muda Beli Rumah Pertama”, has attracted numerous visitors at the exhibition.
Konvensyen Hartanah was also the first fair to feature StarProperty.my’s Win A Home (WAH) Contest.
Refer from Starproperty.my
WHAT happens when you unknowingly purchase a sub-sale property from someone who has been declared a bankrupt?
According to the Insolvency Department, 82,383 individuals (69.3% of them men) were declared bankrupt by the courts in 2016.
And the number of bankruptcy incidents arising from defaulting on instalment payments for car, housing and personal loans is increasing.
Speaking at the recently-held Konvensyen Hartanah organised by StarProperty.my, advocate and solicitor Datuk Nazri Mustafa said finding the right lawyer was crucial when buying property, especially when it involves sub-sale property.
A sub-sale purchase is when you buy from the current owner of the property or the pre-existing owner, normally in the form of a completed property.
“Sub-sale purchases usually occur through printed and online advertisements or auctions,” said Nazri.
He said the transaction should not be settled by verbal agreement with real estate agents.
“Go through lawyers. They will assist in the process of purchasing a property with proper checks and documentation.
“There have been plenty of cases in which sub-sale property sellers were found to be bankrupt. In such cases, you would need a lawyer to verify if the seller is a bankrupt,” added Nazri.
According to the Insolvency Department, once a person is declared bankrupt, the Director-General of Insolvency (DGI) will take possession of all documents and assets of the individual, including bank accounts and properties. Subsequently, the person-in-charge will administer and investigate all affairs related to the bankruptcy.
The DGI then has the right to sell all assets, from which the proceeds will be distributed among the creditors. This basically means liquidating everything that the individual owns.
“When a seller is bankrupt, he would need to get the approval of the DGI before selling his property.
“All of this involves a large workload of legal proceedings and you would want to have a good lawyer by your side when buying such properties,” said Nazri.
Refer from StarProperty.my