I still remember the day when I finally submitted the offer for my first property and to be honest, I was clueless about the housing loan applications.
I genuinely believed that the property agent will sort out the application on my behalf and everything is a smooth sailing process after having the offer accepted by the seller.
I was wrong.
The entire process of property searching, analysing, underwriting the property and going through the price negotiation is only the very beginning. Once the offer is submitted, there is an entirely different process that followed, the housing loan application.
In this article, we will explore in-depth the entire process of applying for a housing loan.
If you are reading my blog for the first time, this article is part of the mortgage loan series where I’ve previously covered a few topics relevant to the mortgage loan. Do check them out if this article has been helpful as we explore the nuances of mortgage loans.
- Basic Term Loan, Semi-Flexi Loan, Full-Flexi Loan: which one should I go for?
- The 10 Common Term you should know before signing a mortgage loan offer
So where does the journey begin?
Step 1: Engage mortgage bankers or mortgage brokers
If you are wondering, no, bankers and brokers are not the same. Both bankers and brokers are good networks to have during the loan application process but they play different roles.
Generally, a mortgage banker is employed by the bank to represent the bank’s financial products. In contrast, a mortgage broker collaborates with multiple financial institutions to have access to a wider range of products. A good mortgage broker is reliable and effective in managing loan applications.
A mortgage banker is someone who works for the bank that you are interested in applying for a mortgage loan. For example, if you engage the service of a mortgage banker from Maybank, you will only be offered financial products from Maybank.
Instead, if you engage the service of a mortgage broker, you are essentially engaging an intermediary that helps people get their housing loans. Their main role is to qualify your financial status and to connect you to financial institutions with products that best fit your financial requirement.
Personally, I would recommend engaging the mortgage bankers at the beginning. If none of the banks is willing to offer you a housing loan, only then do you engage the service of a mortgage broker. I prefer mortgage bankers over brokers for the higher trustworthiness in information relayed about the financial product.
Working with a broker can sometimes invoke doubts about the broker’s credibility and there is no continuation from the application process to the signing of the loan offer and agreement.
In some cases, mortgage brokers have the tendency of leaking personal information to their fellow brokers. If you are concerned about privacy, best to opt for mortgage bankers as they are bound to Personal Data Protection Act (PDPA)
Mortgage bankers are well-versed and thoroughly trained on the financial products their bank offers. On the other hand, mortgage brokers may not know the intimate details and nuances about the financial product they offer you.
Where do I find good mortgage bankers or mortgage brokers?
If you are just starting out, there are a few common channels to engage mortgage bankers.
- The official bank website
Typically, there will be a “contact us” page by banks to assist you with your enquiry. Do drop them an email there and they should reach out to you shortly. - Recommended panel bankers from developer
Most property developers work closely with selected banks and bankers. If you do not know where to begin, you should see a pile of namecards by banker at the sales gallery’s reception counter. - Talk to your property agent
Some good property agents provide a complete service from house viewing, analysis and loan application. They can either connect you to good bankers they work with or act as an intermediary in securing a housing loan. - Referral from friends and family
Depending on your background, there may be a few mortgage bankers in your contact list who may be able to assist you with the application. If you trust me enough, I can also connect you to a few good bankers I work with closely. Do reach out to me at my email, found at the “About Us”
Over time, you will find yourself accumulating these contact to build your property investment network. We all start out as the keen amateur and as we learn and grow, we eventually build our own investment system and network.
Step 2: Prepare the necessary document for loan application
Once you’ve found the right mortgage bankers or brokers to work with, you’d need to prepare the required documents to proceed with the loan application.
Below is the typical list of required documents,
- Copy of your identification card or passport
- Property offer letter
- Employment letter
- Latest 3 months’ salary slip
- Latest bank statement (account where monthly salary is debited)
- Latest EPF statement
- Income tax submission
The above list is mainly applicable for individuals who are employed in a full-time employment role. If you are self-employed, freelancer or a business owner, the document necessary for the application is vastly different.
In some cases, banks will require you to show financial strength where you will be able to continue monthly instalments in the case of retrenchment.
With that said, you might want to prepare in advance the following documents,
- Savings accounts
This is to show that you have some money saved up and ready as emergency funds. - Fixed deposit
Having some funds in the fixed deposit serves the same purpose as the savings account. - Investment account
If you have an offshore or local investment account, showing your position and capital size can be helpful in convincing the banks of your financial position.
At this stage, my best advice to you is to work closely with the bankers in getting your application to proceed and underwritten. I have known of friends and clients who are extremely resistant against bankers, thinking that they should withhold as much information as possible.
In reality, you want to share with the bankers the specific product you need (be it Flexi or basic term loan), the loan margin and perhaps at the best interest rate they can offer. Similarly, you want to help the bankers understand your financial position so that they can write up a good proposal on your behalf to their management.
Being resistant and not giving any information is not only not helpful to your banker, but it is also self-sabotaging to your loan application.
Step 3: Engage at least 3 banks in your loan application
Think of a loan application as going shopping for a financial product, would you accept the first offer made to you?
The benefit of engaging 3 banks in your loan application is that it improves the chance of being offered a mortgage loan that fits your mortgage requirement. At the same time, having 3 mortgage loans from different banks puts you in a position of authority to decide the best loan and services.
Different banks have different underwriting principles. Some banks are willing to offer a higher loan margin for new development while conservative banks prefer borrowing for subsales units.
Personally, I always apply to 3 different banks whenever I look to seal the deal on a property as it gives me a few advantages.
- Higher chance of receiving an offer that fits my financing needs
Currently, I have more than 2 properties to my name and the loan margin I can get is rather low. Some of the local banks can be conservative and is only willing to offer me a 60% loan margin. On the flip side, there are overseas bank that is willing to offer me 70% loan margin with higher interest rate.
Being able to compare and choose what works for me puts me in an advantageous position, taking control over my decisions. - Comparison between interest rate, insurance premium and service fee
Like how you’d compare prices for an Acer, Dell and Asus, this is how I compare the loan offers I receive from banks. I look at the individual spec that is the interest rate, the insurance premium and the service fee for the flexi-loan I’ve opted for.
Essentially, I am creating for myself a 3-quote system for those of you familiar with this procurement term. - You have negotiation power when you have other offers to fall on
When you have other offers to compare, it is a lot easier for you to tell banker, “Hey, did you know XXX bank offered me at this rate and that rate, I like their offer but I enjoyed your service. Perhaps if you can give me the same offer, I’d go for your service”
Personally, it is all about the negotiation. If you have not read my article on negotiation, check out some of the good strategies before you negotiate your next deal.
Step 4: Be patient and follow up with the bankers
Once you have submitted all the relevant documents and application forms to the bankers, sit back, relax and do your follow up from time to time.
Typically, a mortgage loan application can take anywhere between 4 days up to 14 days before applicants will receive a response if the applied mortgage loan is approved or rejected. If further documentation is required, the application process may extend another week or so.
So what happens after you’ve submitted the application form and documentation to the banker?
- The bank will run through financial checks with CCRIS, LHDN and EPF to countercheck all document you’ve supplied. This is to make sure your financial profile matches what you have declared.
- The banker will have to complete paperwork, underwriting your profile to justify if lending you money to finance your home is beneficial for the bank’s business.
- These information is then relayed to the managemet and the different hierachy of authority will need to approve your case.
The above is the general process for banks and may differ from bank to bank.
Sometimes, the bank may be concerned about your existing financial commitment and your ability to repay the monthly instalment. In these cases, bankers will get back to you requesting additional documents to prove your financial strength.
When this happens, do expect further delays on the application process by another 1-2 weeks.
When can I apply for a mortgage loan if my application gets rejected?
It is possible to resubmit an application for a mortgage loan after waiting 3 to 6 months. Depending on banks policy, it is possible to reapply for a mortgage loan as quickly as 3 months while overseas banks tend to require a cool-off period of 6 months.
I recommend getting the entire application done right the first time. More often than not, if you messed up this application, you’ll likely default on the entire opportunity if you receive no loan offer from any bank.
Step 5: Read the terms and conditions stipulated in the loan offer
It is very convenient to skip through the entire term sheet provided with the loan offer. However, it may not be the smartest thing to do.
If you are not careful, you might even sign yourself into a loan structure that does not work for you. For example, signing into a basic term loan while you are opting for the full-Flexi loan.
It is highly unlikely for it to happen as most bankers are professional and will advise you to their best knowledge so that you are well aware of the financial product you opted for. However, it does no harm to spend a good 10 minutes going through the terms and conditions for a mortgage loan that will be with you for the next 35 years.
Typically, there are a few common terms you will want to look out for,
- Basic Term Loan, Semi-Flexi Loan or Full-Flexi Loan
- The prescribed interest rate
- Mortgage tenure
- Monthly instalment
- Service fees and annual charges
- Early settlement and lock-in period
If you want to better understand what each of these terms means, do read on in this article on the 10 common terms you ought to know before signing a loan offer.
Step 6: Renegotiate a loan offer or rejection letter
Some banks will require you to have an insurance policy supplied by the bank in your name. Otherwise, they may increase the interest rate slightly higher. The insurance mentioned are typically named as Credit Level Term Assurance (CLTA), Mortgage Level Term Assurance (MLTA) or even Mortgage Reducing Term Assurance (MRTA).
I will not go in-depth into these different insurance policies. However, what you ought to know is a little tip to help sweeten the deal you can get from the banks.
Always work with your bankers during the application process. Be frank with them and ask them to find a way to remove the insurance premium or to reduce it to the lowest level while maintaining the lowest interest rate possible.
From my observation, local banks in Malaysia tend to have the nasty habit of forcing borrowers to take up their insurance policy or accept the higher interest rate. Hence, you can take an offer from an overseas bank and use it as a bargaining chip when you talk to the banker representing the local bank of your choice.
What happens if you get rejected at one bank?
Before jumping to conclusions, it is always good to understand from your banker why your application is rejected. There is a plethora of reasons why your application is rejected, here’s a simple list as a reference,
- Poor credit history or payment score
Perhaps you have been late on your credit card payment or even the student loan you took to enter university. - Documents and bank account do not tally
The banks cannot verify your income, causing your profile to be flagged as a big risk to the bank. - Bank cannot meet your request
Say you are demanding for a 90% loan while your income can only justify a 70% loan margin. Clearly this is not going to fly with any bank as they are concerned about your financial commitment and repayment ability. - Different banks have different policies
If your application is rejected here, the next bank may be able to accept your application. That is why we apply for at least 3 banks at one time.
Once you’ve identified the reason used for your rejection, it will be easier to renegotiate with your banker. Typically, if the documents do not tally or if the bank is unable to meet your request, it is better to work closely with bankers to justify your case or to have a realistic look into your requirements.
If it is a case of poor credit history or payment score, I reckon other banks will feel the same about your profile. In some cases, they may consider giving you a loan but at a much higher interest rate.
Hence, it is ideal to always keep a healthy score with CCRIS and make sure all your credit card payments are made on time and in full.
Step 7: Should I take up a high interest rate housing loan?
If the offered loan with a high-interest rate is the only option available to you, it is better to accept the offer and plan ahead to refinance your loan. If the return on investment is promising, refinancing on a high-interest loan a few years later is a good way of securing a sound opportunity.
Quoting the words of my mentor,
If the deal is good and the return is great, having a high-interest loan is justifiable in the short term to secure the opportunity. Past the lock-in period, it is possible to refinance the loan to reduce the interest rate and that will improve profitability.
– Paul’s mentor –
Final Words
Thank you so much for reading this article. I hope the information shared through my writing has been helpful in your journey in building your investment portfolio.
Until the next article, take care and stay safe.
