If you are looking to purchase a home from the market, you are typically given a 14 days period to apply for a housing loan after the offer to purchase is submitted and accepted by the seller. In some cases, you may seek an extension on the 14 days for an additional 14 days to apply for a mortgage loan.
In the past, banks were efficient and could process a mortgage loan within 1 week. So that gives you about 1 week to prepare all the relevant documents for a mortgage loan application.
However, that is no longer the case.
In my experience, banks are taking longer these days to write up a mortgage application and get it processed, typically taking 8 – 12 days, leaving us with less time to prepare our documents. On top of that, there will be potential delays from the bank where additional information is required to filter your profile.
Hence, my advice to friends and readers is to prepare ahead of an offering to the seller.
If you are going to do all the necessary work on underwriting the house, making sure you are buying at the right location at a fair price, then you should be preparing all the relevant documents to secure the appropriate funding for the house.
After all, the deal is sealed only when the agreements are signed – If there is no funding, there is no deal.
So what documents should you prepare if you intend to apply for a mortgage loan?
The documents you should prepare for a mortgage loan application depends on the type of employment and entity applying for the loan,
- Full-time employment
- Self-employed person
Today, in this article, we will be exploring the documents needed for a mortgage loan application if you have a regular employment job.
Also, 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
- Step by step guide on applying for a mortgage loan in Malaysia
Let us begin!
Documents a salaryman should prepare for a mortgage loan application
The mortgage loan application for a salaryman is typically simple and straightforward as the bank favours consistent income with little deviation. As long as you are able to prove you are financially stable and that your role in the company is secure, banks are likely to offer you a loan.
For an employed person, documents preparation is simple and few. However, it is good to prepare a few other documents at hand to quickly cater to any questions raised by the banks.
Here is a quick list for your easy reference,
- Copy of identification Card (MyKad)
- Employement letter or salary increment letter
- Latest 3-months’ payslip
- Latest EPF statement
- Latest Bank statement
- Latest EA statement
- Savings and Investment statements
1. Copy of Identification Card (MyKad)
The copy of the identification card must show clearly your updated particulars, with both the front and back of the card shown. The banks will require your identification card to cross-check your declared document against their bank system and the government’s system.
I believe having a copy of your identification card on your laptop is a common thing in today’s high-tech world. We use our identification card to register for mobile apps such as Touch’n Go, Grab, Lazada and the likes.
So if you still do not have a copy of your identification card stored on your laptop or google drive, you really should be doing it now.
2. Employment letter or salary increment letter
An employment letter is useful to inform the bank that you are working a full-time employment role with an established company in the country. The bank will later use this letter as evidence of your employment or use it to cross-check against other declared documents for the mortgage loan application.
If you are employed under a contract basis that is renewed annually, do not give up. While not all banks are willing to accept a loan application from a contract staff, there are some banks that are willing to consider and offer a fair housing loan.
In my opinion, it is always good to do a pre-approved loan check with a few banks. This involves getting the bank to do a thorough run-through on your profile and advising you on the loan amount you can get from them.
Having the pre-approved loan checks gives you better assurance before putting in an earnest deposit. I recommend this not only to the contract staff but to the general homebuyers looking to buy a house.
If you do not know how does an earnest deposit works, do check out this article where we explore down payment and earnest deposit.
3. Latest 3-months’ payslip
Just in case some of you ask, what is a payslip?
A payslip is an official document issued by your employer to you whenever the company pays your wages. It should show your total wages earned for the month, personal deductions made for tax and EPF. In some cases, it would also show the allowances paid for the month.
For the regular salaryman like us, the bank would typically require our latest 3-months’ payslip. If you have more to offer to the bank, it is not necessary but there is no harm to providing them.
After all, what the bank looks for in our payslip is the consistency of our monthly income. Typically, they will refer to the basic salary since those amounts do not change from month to month.
For some employment where consistent monthly allowances are provided (car allowances, housing allowances), banks can consider them for your loan application.
Irregular allowances such as travelling allowances and meal allowances that fluctuates from month to month are likely to be ignored by banks and will not be considered for the loan application.
How much will the bank consider towards my loan application?
Typically, banks will consider a percentage of the monthly income towards the housing loan. For individuals with little to no financial commitments, the bank may consider up to 80% of your income for the loan. In contrast, high debt individuals will see 50% or less taken for loan consideration.
If you have only recently graduated, my personal opinion is to resolve any outstanding education debt.
Although the education loan’s interest rate is low, it adds very quickly to your financial record in CCRIS as a blockage to any loan application you may make.
Additionally, the first thing you want to do after getting an employment role is to pick up a low-budget credit card. This is crucial to build payment history with the bank but be mindful not to max out on the credit limit and have any overdue amount unpaid.
4. Latest EPF statement with contribution
If you are drawing a regular salary, then you know about the deduction from your monthly salary for EPF contribution. Depending on the contribution you’ve opted for, 9% – 11% of your salary is deducted every month for your retirement savings (EPF account 1 and 2).
So why does the bank need my latest EPF statement?
Other than your employment letter and the monthly payslip, the bank will use the EPF statement to cross-check your declared monthly salary.
If you declare to the bank that you are earning a regular RM4,000 every month, then the bank is expecting to see a consistent contribution to your EPF statement.
If the contribution to your EPF account is inconsistent, the bank will mark this as a red flag and most definitely seek clarification from you as to why there exists an irregular contribution pattern.
5. Latest Bank statement
When submitting the bank statement for a mortgage loan application, it is best to submit the statement that reflects where your active salary is debited. This is because banks will use your bank statement to cross-check the payslip statement and EPF statement to understand your earning capability.
To make it simple, if your monthly salary is debited into your Maybank account, then you should declare the Maybank bank statement for the mortgage loan application.
This is important because it shows that you do earn a regular income from your job and this bank statement is the proof to support your claim.
What to do if you are paid using alternative methods?
If you are paid using alternative methods, my recommendation is to advise your company to pay you through a proper company’s account or cheque if possible. Hence, below are some of the possible payment scenarios that I would avoid if possible,
- Cheque payment (Manageable but needs to be cashed into the same account)
Keep a copy of all your cheques as proof and be sure that the cheque amount is exactly the same in your payslip. - Third-party company (challenging but can be managed)
If you are paying by an outsourced finance team, it might be challenged by the banks as it does not reflect your employer’s name . However, this depends on the bank’s checking measure and you might find some bank that can accept your situation. - Cash payment (impossible to manage)
If you are paid by cash, the best way forward is to get your employer to change their payment method. There is no bank in Malaysia that is willing to accept a “cash payment” as your salary.
6. Latest EA statement
The EA statement is a yearly remuneration statement provided by your employer that includes the salary earned in the year. Any employer that failed to prepare and disseminate the EA form to employees before March will be fined RM200 – RM20,000 and or imprisoned for not more than 6 months.
Similar to the bank statement, payslips and EPF statement, the EA statement serves as a cross-checking reference for any declaration on income and employment.
7. Savings and investments
The previous documents mainly serve as proof that you do have employment with company XYZ and that you do earn a consistent salary as per the agreed employment letter.
When it comes to declaring the amount of savings and investments you have at hand, the main purpose is to give the bank confidence that should you change your job or lose your job, you will be able to pay the monthly instalment using your savings and investment accumulated thus far.
In my personal opinion, there is no need to show all of your savings and investments to the bank. If you are able to show a savings account with a year’s worth of salary, that should be more than sufficient to prove your financial stability.
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.
