Finding The Best Deal For A Housing Loan

Before a developer launches a new project, they will typically team up with certain different banks (i.e. panel banks) to finance their project and offer special packages to homebuyers for house loans.

However, picture this situation:

Bear in mind, this happened even though Bank A is still a panel bank under X’s desired property. Although projects are usually is linked with several banks, banks that are not under the developer’s “chosen” list are typically not recommended to buyers to borrow housing loans from. Instead, developers usually recommend their chosen banks with the highest loan approval rate to buyers.

Ultimately, buying a house is just about the most expensive thing you’ll ever purchase in your life, so it’s best to do your homework and research properly. There’s no point in signing a loan deal without knowing how it will be beneficial to you, as a homebuyer, instead of the developer, in the long run. 

If you’re concerned about how to secure the best housing loan deal for your future home, read on to find out more.

How to find the best home loan

Customer’s perspective: Low Interest Rate

Besides knowing how much you can afford to borrow, the first thing that comes to mind before purchasing a house is to find a loan with a low interest rate. If you managed to secure one, you could reduce your financial burden by paying a lot less for your new home over the lifetime of your mortgage.

Developer’s perspective: High Approval Rate

Developers have a straightforward goal when it comes to promoting home loans to buyers: selling their project units as soon as possible. Thus, despite the multiple engagements with different banks for their projects, developers would usually suggest loans from banks that offer the highest probability of approval rate, instead of loans with lower interest rates. As the saying goes, “it’s every man for himself”. It’s understandable for the developers to prioritise the best outcomes for themselves to secure the deal with homebuyers as soon as possible. 

Nonetheless, you shouldn’t let this affect your home loan decision. There are other factors that should be considered before unthinkingly giving in to developers' recommendations. 

Homebuyers' Checklist 

So how do you know if a loan is worth applying? Let us summarise the main points to check before applying for a home loan: 

1. Loan margin
2. Interest rate 
3. Approval rate

Loan Margin

Loan margin or margin of financing (MOF) refers to the percentage the bank can offer you a loan based on the property’s selling price. In simpler words, it’s the amount of money that the bank can lend you.

In Malaysia, banks would typically lend up to a maximum loan margin of 80% to 90% of the selling price. This means that for a house worth RM 500,000, you can borrow up to RM 400,00 to RM 450,000, with the remaining amount being paid upfront. However, if you qualify for the LPPSA scheme, you can get a loan margin up to 100%. 

Interest Rate

To put it simply: the lower interest rate, the lower the amount of monthly repayment throughout the loan tenure period, the better it is for your wallet.

The typical interest rate for a house loan in Malaysia is 4.3% to 5.55% based on base rate (BR). A slight reduction of 0.25% in interest rate can even allow you to save tens of thousands of Ringgit over the tenure period. To get a better idea of this, you can read our previous guide about the effects of OPR cut on housing loans.

Loan Assessment & Approval Rate

It’s equally important for you to be financially ‘healthy’ to afford your own home so that there is an increased probability that your loan will be approved by the bank.

Typically, loan applications are assessed based on two principles:

• Conduct 
• Income/DSR

Conduct

This refers to how you are managing your credit score over the past 6-12 months. Credit scores include your:

1. Payment history 
   • Whether you are paying your loans on time
2. Credit mix
   • The types of loans you have. Having a secured credit to collateral (e.g. mortgage, car loan) will boost your credit score compared to unsecured credit without collateral (e.g. personal loans, credit card debt)
3. Length of credit history
   • Your payment behaviour for debts, if any
4. New credit applications 
   • The approval rate of your previous credit applications. Past applications that have been continuously rejected will only hurt your credit score.
5. Legal track record
   • If you’ve had any legal action taken against you as a defendant

The higher your credit score, the greater the probability that your loan will be approved. To calculate your creditworthiness, you can use this free online tool.

Income/DSR

This refers to calculating the loan amount you are allowed to take based on the income you are earning. In other words, checking your Debit Service Ratio (DSR). DSR of less than 70% will result in a greater loan approval rate. For more detailed information, you can read our previous guide about DSR here. 

To sum it all up,

Loan Assessment = Good Conduct (High Credit Score) + Good Income (Low DSR) 

Your next action

Now that you have the relevant information for securing a good home loan, what should you do next? 

Check ALL of the panel banks of a project

• Don’t settle for the first home loan offered by the developer. Make sure you do extensive online research about other panel banks, know the pros and cons, and from there, you can go with the best option. 

Choose to apply for a home loan through the developers or by yourself 

• After you’re sure of your home loan choice, you can either ask the developers to apply for the home loan for you or apply by yourself. With proper negotiation for the latter, banks might offer you a better home loan based on your financial health.

Get ready all the related documents 

• You should also prepare all the relevant documents to ensure a smooth application. Presenting all the required and correct documents (don’t falsify information on your documents!) can therefore allow you to assess the probability of getting an approved home loan

  For employed applicants	For self-employed applicants
  Identification Card – NRIC copy (front and back) Latest 2 years LHDN e-filing or latest 2 years EPF statement Latest 3 months pay slips  Latest 3 months bank statements Latest EA Form Company offer letter/confirmation letter Deposit statement e.g. FD, ASB or Bonds (if any)	Identification Card – NRIC copy (front and back) Latest business SSM Latest 6 months Company Bank statement  Latest 6 months Personal Bank statement Latest income tax with receipt acknowledgement (2 years declare)  Form 24 and 49 Deposit statement e.g. FD, ASB or Bonds (if any)

Key Takeaways

The process of buying a new home is not easy to navigate, but with this guide, perhaps you can make better decisions on how to secure the best home loan deal. 

To summarise, you should:

• Research all of the panel banks of your desired property
• Compare interest rates and loan margins from several different banks 
• Check your credit score & DSR to know the probability of loan approval
• Present all the required documents and apply by yourself or through the developer 

Still confused? You may reach out to us here.