6
Property Factors That May Result In Your Home Loan Being Rejected
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 land
If 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, for leasehold (with less than 60 years left) and Malay 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 properties
Believe 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
properties
If 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
controversial financial turmoil when the company fell
in the late 90's.
4. Location
As 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
upkeep
If 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. Title
Most 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.
