Taking a home loan? Here are 5 common mistakes that people make especially when they’re applying for it for the very first time. Read on so you can avoid these pitfalls too.
Diving in when you’re not qualified
Banks, by nature, are generally eager to offer property loans to qualified homebuyers. The keyword, though, is “Qualified”. In Malaysia, a qualified housing loan applicant generally refers to one with the appropriate Debt Service Ratio (DSR) and has no red marks on the Central Credit Reference Information System (CCRIS) report collated by Bank Negara. If you don’t fit the criteria, they’ll have no problem rejecting your application. So before you apply you’ll want to make sure you’ve done the necessary preparations and are not fighting a lost cause right from the start.
Tips on DSR and CCRIS
* You can easily check your DSR by dividing your total monthly debt or loan commitment (including the loan you plan to take) against your monthly income. Say the bank has a DSR requirement of 50% and your monthly income is RM10,000; you’re considered a qualified candidate if your total loan or debt commitment is RM5,000 or less.
* You can make sure your CCRIS is clean simply by servicing all your existing loans, debts and credit card bills on time.
Going straight for the lowest interest rate and nothing else
You’re going to borrow a big sum of money. Obviously, you’ll sign up with whoever that offers you the lowest interest rate. Right? To a certain extent, it is. Your priority should definitely lies with getting the lowest possible interest rate, but you shouldn’t forget about things like margin of finance, lock-in period, and simple stuffs like making sure a branch is within your vicinity.
Applying with just one bank and telling them so
In Malaysia, it has become a general practice for seasoned homebuyers to “shop around” for the best loan package before committing to one (NOTE: to find out how, read our guest post with renowned Malaysian property guru Jeffery Lam). Apply with only one bank, and what you’re really doing is giving yourselves no other options even if the terms offered to you are appallingly bad.
The even worse mistake you could be making is telling a loan officer that “they are the only bank you’re applying with”. It’s pretty much the same as giving them the licence to give you the worst possible rate, because they’d know you have nowhere else to turn to as the 2 or 3 weeks deadline you’re usually given by the housing developers runs down.
Not factoring in your home loan costs
Property financing involves fees, charges and even home insurances that may come as a surprise for the inexperienced homebuyers. Some banks absorb part of these charges, whilst others may not. Most home buyers have limited funds (and hence the need to take a loan), so it is imperative that you understand these charges involved before you commit.
There are various fees and charges home buyers must take into consideration when buying a property.
Not reading the terms & conditions
Before making any financial decisions, it is important to read all the fine prints. This goes for your loan agreement as well. If you don’t have the capacity to do so, make sure you get the loan officer to point out all the things that matter (such as loan amount, interest rate, instalment amount, loan period, margin of finance, lock-in period, early settlement penalty and fees and charges).
The general rule is, if it doesn’t appear in your agreement, it doesn’t take effect. Period. So if your housing loan shows a lock-in period of three years while your officer is telling you it’s one year, the former wins. All the time.
Getting a property of your own is great but make it greater without making these mistakes.