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Buying a home is often a big purchase for which you’ll most likely need a sizeable loan, however, as comedian Bob Hope says, “a bank is a place that will lend you money if you can prove that you don't need it". While humorous this quote is more than just a joke, it essentially illustrates how banks respond to borrowers. Those who have means to repay a loan will have a better chance of securing one.

Thus, to give yourself the best prospects of receiving financing for your next property purchase, you’ll need to show your lenders the financial strength you possess. We’ve gathered and expanded on three effective tactics that are best started at least 12-months before attempting to secure financing. 

Here’s what to do prior to applying for a home loan.


1. Raise a Strong Deposit

While it is technically possible to secure financing for a home with little or no deposit, the qualifying terms are quite stringent making it difficult to successfully get your loan. On the other hand, borrowers with deposits in hand will appear much more attractive to lenders.

Even if you do secure zero-deposit loans, you will often end up paying higher interests and find that your home purchase options might be limited in terms of price and location.

Thus, it’s best to improve your financing prospects by building a deposit of at least 5% to 10% (even better if it’s 20%) of your target purchase price.


Here are a few ways to fund your home loan deposit

- Employ “aggressive savings” tactics. Save directly from your paycheck by setting up an automatic deduction to be channeled into a separate savings account. You should also place all extra earnings (e.g. bonuses, commissions, etc.) in this dedicated account as well.

- Cut back on utilities and unnecessary subscriptions. By aiming for a cutback of at least RM100 per month (or 15% whichever is more), for a period of 12 to 18 months you can accumulate a minimum of RM1, 200 to add to your deposit fund.

- Borrow from family members. Consider asking for a ‘friendly-loan’ from more well-off relatives, but do have a repayment plan in place before asking for one. Or else you may ruin relationships and incur more debt than you can repay.

- Put your savings into a high-interest Fixed Deposit account. Doing this will help you safely build on your existing savings. It could also help improve your financing chances if you apply with the bank in which you have an FD.

EPF withdrawal. You may choose to take out 10% of the home purchase price from your EPF Account II for 100% housing loans. Your EPF savings also provide you the option to pay off your loan sooner with special housing withdrawals for you and your spouse. 



2. Improve Credit Score

Bank lenders depend heavily on credit scores (amongst others measures) when considering an applicant’s eligibility for home financing. Those without a strong credit history will find it rather difficult to obtain a home loan or any other type of loan for that matter.

Thus, it is crucial to strengthen your credit score before applying for financing. Working on your credit should begin at least 12 months in advance, so that any arrears you may need to clear up will not appear on record (for CCRIS).

The first step is to obtain a copy of your credit report; you can get in person, online or via correspondence from the Credit Bureau of Bank Negara Malaysia or through official credit reporting agencies such as RAMCI and CTOS.

Once you’ve obtained your report, check to see if the information is accurate, pay up any arrears, and settle disputes (if any); common ones are from unpaid phone bills and other utilities.

Other than ‘cleaning’ your prior credit, you can further improve your rating by applying for a credit card (if you don’t already have one or are otherwise holding not more than three) to show your access to funds. If you do swipe for purchases, be sure to stick to your limit and make timely repayments to indicate to potential lenders your responsible spending habits.



3.
 Get Your Support Documents Ready

As you apply for bank loans to finance your home purchase, you will need a host of documents to support your application.

But other than standard identification papers, bank statements and proof of income, having special support documents could improve your viability as a borrower, earn you better interest rates and sometimes even speed up loan processing.

In some cases, additional support might be necessary for loan approval, for instance when applying with special circumstances such as being a freelance worker, an aged borrower (even retirees) or of lower income.

Here are the support papers that you’ll need to strengthen your loan presentation

- Collateral Support. If you have fixed deposits, bonds, unit trusts, ASBs and insurance certificates, you can use it as a guarantee on your home loan.

- Other Sources of Income. If you do not have any type of fixed income, it’s important to highlight other ways in which you earn, such as; rental earnings, royalties and dividends. You should also provide proof of other income that may be tax-exempt (e.g. some overseas income).

- Proof of Outside Financing. If you have obtained special financing such as a friendly or company loan for your deposit or other payments, ensure that the contracts or approval letters are in place to certify the source of your funding.


Bonus Tip! To those who are self-employed or working freelance, you might want to consider registering your trade as a business to support your application. Having a company in operation for at least one to two years with tax documents as proof of your earnings could help your application significantly. In addition, do make self-contributions to your EPF account for at least one to two years prior to applying for a loan.


Now you know what to do to become financially pretty before applying for a home loan! But are you settled on the type of home you might want to buy? Try PropSocial’s powerful search feature to help you discover the perfect home! Or post your requirements here and let us help you find the right agent to assist you!



(Written by: Desiree Nair, 10th January 2017)

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Add on, not to forget to submit your income tax every year :) 

Please ensure that you pay your credit cards, unsecured or secured loan, etc on time every month. 

Any delay in the payment will result in your CCRIS report, and any default of payment will also be recorded in CCRIS as well as CTOS in the event that if the bank decided to take legal action against you.


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Does the CCRIS only track your previous 12 months activity before it goes out of their radar? i remember seeing a table of 12 months from the credit report i gather from Bank Negara...

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12 months in CCRIS. However, respective bank will have more than 12 months data for their own reference. 

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Is it 12 months? I heard it's now 6 months. 

@iamronaldsoo, unfortunately I still see a lot of young people not submitting their income tax on time though. Still a lot of them take it very lightly which is a wrong move. Never ever mess with income tax! The consequences is much worse, not worth it.

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@james_bob CCRIS is always showing a 12 months record... and Yes many youngsters do not submit their income tax on time... for my case I very kiasu, the moment the system up and running, the next few days i will be submitting mine... there are also people who like to do it at the very last day... OMG the server normally overload at the last day, no matter how many CPU the IRB virtualize, it will not be able to take the load for the last few days.... 

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higher income = better financial strenght

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Cash is always KING!

Need to bear in mind to repay debt promptly as well.

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Nothing will goes wrong as long u pay your debt on time...

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@Henry... for instance, if you pay your bank loan on time, nothing more and nothing less over the entire loan tenure. I can see it will only benefit the bank... which is bad for your retirement funds in the long run, need to make sure our money work for us and outdo the current inflation rate.

My 2 cents opinion above ya.

Speaking of which, anyone know the current standard of living inflation rate in Malaysia?

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@domng agree with u, for self-stay, pay back as early as possible to save on interest. for investment, pay as min as possible to have more cash on hand, as long as it is positive cash flow.  

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@6011_3531_5354 

That is why it is better to invest in property as young as possible, provided you can afford the downpayment and monthly installment.                                                      When you still young and capable, should be able to stretch the bank loan repayment tenure longer... which translate into lower monthly installment (bear in mind the higher loan interest in the long run)...as long as the monthly rental income outdo the bank loan installment, you are in good shape... just let the tenant "pay" for your invested property.

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@domng agreed. rent out one or two room will help to reduce the burden.

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@6011_3531_5354 

Investment, what is it?

That was what i thought to myself in my early 20s. Nobody taught me when i was younger... but it is never too late to learn and grow... and teach the younger generation on our experiences and lessons learnt.

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advised them to have small loan first for bank record. buyer with too clean record become an issue for banker to approved loan. PTPTN borrowers please start pay your loan or else it will appear it ccris report. lastly my advise either go for lower loan for lower monthly installment or get 100% loan & used extra cash to pay monthly installment in advance.