How to apply Housing Loan in Malaysia
You have probably imagined what your dream home would be like, from the interior design style to the comfort and conveniences of your home.
For most people, buying a home is one of the most significant financial investments they will make in their lifetime, and you will probably need to apply for a home loan. Hence, we will walk you through the process of applying for a housing loan in Malaysia and turn your dreams into reality. We will include some tips on how to make the process go smoother.
1.0 Type of Home Loans
Banks offer different types of home loans to potential homeowners. It can be confusing to figure out which kind of loan is best for you, but it will be easier once you understand the basics.
1.1 Term Loan
A term loan is a stable fixed rate that offers the borrower an interest rate that will not change throughout the loan, and you cannot reduce the loan period or loan interest by making advance payments. Although, this stability comes at a cost as fixed rate loans typically have a higher interest rate than adjustable rate loans.
1.2 Semi-Flexi Loan
Semi-flexi loans are outstanding for financial flexibility. With a semi-flexi loan, you can make partial repayments without incurring additional fees, which means you can choose to repay your loan earlier if you want to, or you can make smaller repayments if you're tight on cash.
1.3 Full-Flexi Loan
Full-flexi loans offer the same benefits as semi-flexi loans, but with the bonus of being able to withdraw any advanced payments at any time - without any extra charges. This is an excellent option for those who may need a bit of additional flexibility in their loan repayment plan.
Flexi loans have interest rates that fluctuate with banks' Base Rate (BR). Term loans offer fixed interest rates that are not affected by changes in the BR. Banks' interest rates are based on the base rate set by Bank Negara Malaysia (BNM). When BNM increases or decreases the interest rate, this directly affects the interest rates of borrowers. Also, all banks offer different interest rates, so it will be a good practice to get a few options before deciding on one. You can check out some other home-buying tips here.
You can do a quick check on some of the types of home loan available along with the latest home loan interest rates offered by some banks here (these are just for your reference):
To calculate your home loan, you can use a home loan calculator to estimate your monthly repayment.
2.0 Margin of Finance (MOF)
The margin of finance is the difference between the total amount of a home loan the bank is inclined to lend to an individual and the cost of the property. In other words, it is the loan portion the borrower does not cover.
For example, the MOF for a 90% home loan for an RM500,000 property is equivalent to RM450,000. Hence, the balance of RM50,000 will be borne by the borrower.
In Malaysia, the standard practice of most banks offer up to 90% home loan, but there are also cases of 100% home financing options. Still, ultimately the MOF depends on the individuals’ risk profile which we will elaborate on after this.
3.0 Debt Service Ratio (DSR) Calculation
The debt service ratio (DSR) is a financial metric that measures the percentage of an individual's cash flow used to service its debt. The debt service ratio is important because it helps banks assess an individual's ability to meet debt obligations. A high debt service ratio indicates that an individual uses a significant portion of its cash flow to service its debt, which can signify financial instability. Conversely, a low debt service ratio indicates that an individual has plenty of cash flow to service their debt, which is a sign of financial health.
In most cases, the DSR for a housing loan is calculated based on your monthly net income and your total monthly commitment that you are currently paying.
3.1 List of monthly commitment
Mortgage Loan
Hire Purchase Loan
Personal Loan
PTPTN Loan
Credit Card Outstanding Balance
Overdraft Loan
3.2 Net Income Calculation
Gross Income (Basic Salary + Fix Allowance + OT + Commission + Bonus)
- Fixed Contributions (EPF + SOCSO + Taxes)
= Net Income
3.3 DSR Calculation
Total monthly commitment ÷ Net monthly income × 100 = DSR
Example: (RM 2000) ÷ (RM 3500) x 100 = 57.14%
A healthy DSR percentage should be 70% for net income below RM3,000 or up to 85% for net income above RM10,000.
So if your DSR doesn’t exceed the limit compared to the bank’s maximum allowable DSR limit, you are one step closer to attaining that approval on your mortgage loan application and a step closer to your dream home!
4.0 Credit Score
A credit score is a quantitative indicator of your creditworthiness. The higher your credit score, the more likely you will be approved for a loan. It is a number that banks use to determine whether or not you are a good candidate for a home loan.
The value of your credit score is calculated based on your credit history, which takes your debt payment history, the length of your credit history, and outstanding debt into consideration. Banks generally will determine your credit score based on these 2 factors: CCRIS and CTOS report.
4.1 CCRIS
The Central Credit Reference Information System (CCRIS) is a helpful system set up by Bank Negara Malaysia's Credit Bureau to help evaluate a potential borrower's credit history and behaviour. This system is an excellent way to assess your financial health and creditworthiness based on your past borrowing and repayment history. Therefore, paying your debts on time, including any credit card payments, is always best. You can check for your CCRIS through this website.
4.2 CTOS Report
You should always pay your debts on time to maintain a good credit score. CTOS Data Systems Sdn Bhd (CTOS) is a Credit Reporting Agency in Malaysia that keeps track of an individual's or company's credit history. They use this information to calculate a consumer's credit risk by assigning them a credit score. The score has a range from 300 to 850, with higher numbers meaning lower credit risk. So don't let your debts pile up and ruin your good credit score! You can check for your CTOS report through this website.
5.0 Document Requirements
If you have understood all the above and you are ready to apply for your home loan, you need to prepare the required documents, which include:
Copy of your IC/passport
Salary slip
Bank account and EPF statements
Income tax receipt
Property booking form
There are also different document requirements depending on your type of employment.
| Salary Earner | Own Business |
|---|---|
| Latest 3 months payslip | Company Registration (SSM, 24, 49) |
| Latest 6 months commission slip (commission earner) |
Latest 6 months company bank statement |
| Latest EPF Statement | Latest 2 years Form B |
| Latest 2 years EA Form |
After you submit all the required documents, the bank will process your loan in 2 days up to a week. If, in any event, your application is delayed, it may be because the loan repayment is too high for you to afford.
In this case, you will need to present alternate sources of income, like a Unit Trust Fund or Fixed Deposit account, to avoid having your loan application cancelled.
Assuming your housing loan applications have been approved, you will select the bank with the best interest rate. You will receive a Letter of Offer, which outlines the buyer's interest in purchasing the property and usually includes a form of payment to secure it, followed by the rest of the home-buying process.
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