In a previous article, we've talked about the pros and cons of purchasing a property in cash versus applying for a home loan. Home loans work the same way as any other loan does. The lender (the bank, as is often the case) charges an amount of interest and the borrower pays the money back plus interest in installments. However, the criteria that lenders look at before approving your loan can be a little different. Here are the four main things lenders think about to decide whether to approve your home loan.
As with most other loans, one of the first things to look at is your credit history. Your credit history of course tells the lenders how good of a paymaster you are. It's in the lender's best interest to understand fully whether or not you can pay them back, and taking a look at your credit score helps. The better your credit score is, the more likely your loan will get approved. For full details on what a credit score and how to maintain a good one, you can check out our article on the subject.
This refers to the assets or funds you have to cover the payments associated with the home loan. In addition to the 10% down payment, you also have to pay several additional fees like legal fees, processing fees, and various stamp duties. The lender will take a look at your funds and assets to determine that you can cover these expenses with little trouble. The more you have in assets, the easier it is to ensure that you can pay them back the cash you owe. In fact, if you can pay more than the typical 10% down payment, you're even more likely to get your loan approved.
This is how able you are to repay the loan based on income, employment history, savings, and monthly liabilities. How much you have the day you apply for the loan and how well you've been paying back your loans in the past isn't an indicator of how you'll be paying in the future. To account for this, lenders will take a look at your earnings and expenses to project how compatible your monthly cash flow will be with their monthly expectations once the loan is added to your expenses.
The one major additional factor concerning house loans is the value and condition of the property based on their appraisal. Lenders have to think about what might happen should you fail to fulfill your loan obligations. In the case of a home loan, when a property looks to be in good condition or expected to rise in value, the lender is more likely to approve your loan. Because even if you renege, the bank can auction off the property or loan it out to other would-be borrowers to make up for their loss.
There you have it. The four important factors affecting the bank or lender's decision when considering whether or not to approve your home loan. Keep these in mind and make sure your details are favourable, and you'll be approved for your home loan in no time. Before getting approved however, you have to apply for one. Thankfully, we have a comparison tool that compares all the best home loans in Malaysia so you can find one that suits your needs just right. Have anything to contribute to this article? Do share your thoughts with us in the comments section down below!