1

SMART Financing Co.

�

�

2

SMART Financing Co.

�Mortgage application is rejected!”

This phrase is quite frightening, but this does not mean you can't get a mortgage anymore. Gone were the days where an officer judges and evaluates your loan application based on how they feel about you in getting your next loan. With the ever fast economic pace we are going through, and where the banking industry becomes more competitive, banks have resorted in a systematic approach in processing mortgage loans today. With such complex banking matrixes in play, the banks have polices and credit scoring system in place to decide if they would like you to be their mortgage customer or not, how much credit lines you deserve and also predict the likelihood you will default on your mortgage loan repayment.

Knowledge is key and ensuring you have an immaculate financial record at the many levels increases the change greatly by making banks love you which translates to banks granting you more and more credit lines to leverage on your next big investment. Despite all this, today, some 50%-60% of all applications today get declined. We are pretty sure that the majority of mortgage applicants today have the repayment capacity and can afford the said property, but they are being rejected. Strangely, all these boil down to the fact that we need to be discipline in managing our finances. Get sloppy in this area only means no more financing for you. Some of the below could explain why you got your loan declined.

1. Bank Requirement

All banks have different requirements. Not every borrower is appropriate for all banks. You may get your loans approved in one bank but may not get it at another. The problem is that you can just keep applying from bank to bank. Little did we know that BNM tracks all our loan applications and their statuses? If you started off wrongly by getting the first few banks to decline your application, the record sticks there and

Why your loan is rejected and does it means that it is the end of your investment journey?

SMART Financing E-Report TOP 10 Reasons - Your Mortgage Application Maybe Declined in 2015

3

SMART Financing Co.

you may not get your future loans approved at subsequent banks, even though you could have been approved there in the first place. Come on, would you lend to someone who has got his previous 2 records decline recently?

All banks have risk appetites. You may get rejected for holding too many credit cards for instance, which is not the right profile from what the banks wants. Different banks have different risk appetites. Keeping the right balances of product mix in your CCRIS ensure the banks favour you with the right match of profile which they would like to do business with.

Other reason a bank may not want to process your application upfront are because the bank has already max out their end financing line for that development or the bank does not even offer such loan to that location to begin with.

Understanding this decline reason is important in order to reduce wastage of time submitting and applying at banks, which may highly likely decline your application.

2. Low Application Score

Banks are getting more efficient and complex these days. Gone were the days where human judgment and manual eyeballing on the application form was done to accept or decline an application. Most banks have implemented a score engines called application score which analyses a customer's profile for example your age, where do you stay, education level, marital status and etc. Ever wondered why a bank application form is so long with so many unlimited questions about you? Most of this info is collected and in each query a score is given depending on details you provide. Well, it's not as simple as a score for each questions asked but a detailed algorithm combining several combinations of the details provided.

3. Unfavourable Credit Score

Banks rely heavily on the credit score engine nowadays in decision-making. Credit Score engine analyses your repayment

Some of the common "not preferred segments" are as follow:

• Not meeting the minimum age requirement

• Not in the right income band

• The bank does not offer f inancing on such property or at that particular location

There are many ways to skin your CCRIS and some of the below may cause your loan to fail .

� No track record in CCRIS? (zero CCRIS doesn't mean good)

� Number of credit cards you have recently taken up High frequency in borrowing in a short span of time (in the last 6 months)

� Any or combination of credit cards showing high util ization (high spending)

� Any credit cards with over l imits status

� Repayment pattern in the last 12 months

� Are you highly leveraged on unsecured loan (personal loan)?

4

SMART Financing Co.

behavior details in your CCRIS (centre credit reference information system), Basically a credit score denotes an indication on how wisely you manage your money in the past, However, the standard or cut off applies differs from bank to bank as each bank has their own risk appetite.

Again, a clean CCRIS with no loans is not necessary something which the bank loves. You may be viewed as someone with a "thin bureau record". On the other hand, having strings of facilities ("thick bureau") with a long list of

outstanding balances might not necessary be what a bank looks for either. In difficult times, the banks will wonder who

you will pay first? Managing your CCRIS well is a key item to ensure you are always ready to take up a good deal when the time comes.

4. Denied due to Credit Rule On top of credit scoring, banks may still reject application with a set of credit rules i.e. no missed payment for more than 3 times in the last 6 months, no missed payment in the current month in your repayment record and etc.

Credit problems often stand in the way of a mortgage loan approval. While some cases require substantial credit improvements, others can be resolved fairly quickly.

Banks look at your past performance to gauge your future performance. Banks will also look at your leveraging level. If you had a poor repayment track record, chances are you will not get your loan approved. Repayment trend can be easily obtained through CCRIS. Showing any delinquency of 2 months and above will greatly reduce your chance of getting that loan approved. Matters become worst for loans you previously held in the bank you are applying for. Your entire repayment behavior since the day you took up the first product in that bank can be reviewed and how you manage it will play a part in your loan approval.

5. Bad Status in CCRIS

If you have any accounts which repayments were not made over prolong period (normally more than 6 months for a personal loan or credit card, potentially longer for a secured loan), your record may be red flagged as a "special attention

Other warning signs from your CCRIS are items such as enrolling yourself into AKPK (a debt management service under the arms of BNM), legal actions taken upon you before. These are very adverse remarks, which generally stay with you despite you regularising your payments for more than 12 months.

5

SMART Financing Co.

account" in your CCRIS. Generally banks will not proceed in your loan approval upon seeing any red flags, even though you have a good track record for your other credit facilities in your CCRIS.

If you approached the bank before the event of default or went into any legal battles with the bank, expressing your difficulties in meeting your monthly repayments, some banks may offer to restructure or reschedule your loans. These usually done by extending your tenure to lower down your monthly repayments. Such acts are deemed as potential financial distress and despite you continue to make prompt repayments under these schemes; banks have a duty to report your facility as being restructured. Other banks may not want to grant you any new mortgage facility because you will be perceived as not being able to manage your existing debts.

6. De-Cheque

Maintaining a good habit in your cheque facility is important. If you have 2 or more bounced cheques in the past

12 months, most banks will not proceed with your mortgage application. The record will still be in there regardless the affected current account is closed or

the account is not the same bank from the bank you are applying for the mortgage.

7. Bankruptcy

If you are officially declared a bankruptcy, you will not be able to get any new, refinance, top up any mortgage facilities. Bankruptcy status is published in the newspaper daily. If you are a declared bankruptcy, either by a particular bank or any individual or by an organization, your record will be available permanently in CTOS for reference. CTOS captures and compiles bankruptcy status, which is published in the public sources. CCRIS only captures the bankruptcy status, if a bank makes you bankrupt.

6

SMART Financing Co.

8. Debt Service Ratio (DSR)

Knowing the ratio of your debt to income is important and key in getting your loan approved. This is a formula used by banks to evaluate your affordability level.

DSR is calculated based on total of all of your monthly debt obligations -- often called recurring debt/commitment —� this includes your total loan on mortgage, car loans, personal loans, your minimum monthly payments on any credit card debt, and any other loans that you might have, plus the new application monthly commitment divided by the net income after the deduction of income tax / KWSP/ SOSCO (where applicable).

There are 2 key elements in improving your DSR ratio, Firstly, having the bank recognizes your best and highest income here is key as it ensures your D5R ratio gets lower. Next, is to manage your monthly commitments / debts. There are several schools of thoughts in managing your debts. Here are some common ones:

• Sometimes, you just need to pay off some of your debts, if you have some fix repayment debts which are close to the maturity of your facility, find a way to pay it off or consolidate them to other products with a longer repayment period.

• If you have secured loans, sometimes it�s good to move them out of your CCRIS to free up and making you more DSR friendly.

• Find out how the bank you are applying for calculates and assume your monthly commitments. If you are currently paying at a lower amount, prove it and justify them. Banks normally would be able to accept it, if you able prove it.

• Different banks have different DSR. cut off, do find out and apply from those who favours you more

DSR Formula

All Commitment

New Application

Net Income (after Tax & EPF deductions)

This has become the single most common reject

reason. Approximately 35%~40% of the loans rejected are due to this

reason. Different bank has different DSR cut-off or

capping i.e. 60%, 70%, or some even up to 80%.

7

SMART Financing Co.

9. Not submitting the �Right" Income documents and all other required documents

Sometimes, all it takes is a bad scanning or photocopy job in your paper work and out goes your application. Before we dwell into that, here are a basic lists of paperwork required

• Completed & accurate application form • Your clear copy of NRIC which shows your picture and

words clearly • A copy of a sales and purchase/booking form/letter of

receipt from the seller / developer, • A copy of the individual title (where required) • Income documents i.e. 3 ~ 6 months payslips, salary

crediting bank statements, EA form, tenancy agreement, commission statements, Borang B/BE and etc.

Of the above, income documentations are the most common area where an application may be declined. Different banks have different income documents requirements and will also have different method of deriving an income from the documents submitted. This means that from the same document you have provided, different bank may derive income with a variance of up to 50%.

This is often the case when for a particular income document; you did not provide sufficient months of documentations or it is variable (fluctuates in nature).

Generally, for a fixed income earner, the key item to show here is that you contribute EPF and pay your taxes. This should be found in your payslips, if this is the income document given.

For variable income earners / commission earners (which includes fixed income earners with a portion of the income contributed by allowances or incentives), the key here is to show income stability, Banks will need sufficient months of income, typically over a 6 months period. Where there is a high volatility in your income in certain months, you should provide more months to justify income stability. Ensure your bank knows if you are on quarterly I half yearly commission

8

SMART Financing Co.

schemes as you do not want to be viewed as an individual with very high variances in monthly earnings.

For business owners, improper maintenances of your business paperwork may lead you towards a path that you might not want it, which is not getting any loans approved. Typically you will need to have a business of at least 2 years in operation, on top of a good audited P&L or good transactions on company bank statements. This is to demonstrate that the business has a stable income. Similar to a commission earner, proving income stability is the vital.

10. Employment

Just landing in your next big job with a 50% increment in salary may not necessary mean that you increase your chances of getting a mortgage loan. Continuity of employment and how long have you worked with an employer is an important factor in getting that loan approved. Other substantiations can also help justify if you are in this scenario. For example justifying that you are progressing to a new job in the same industry with a better remuneration helps. Other documents to support your applications such as employment confirmation letter or previous employment income history may also help.

The Pièce de résistance of maintaining a good financial track record. If you are deeply indebted or have too many credit problems, regardless on how many banks you might have tried, you might not succeed at obtaining a mortgage approval.

You may need at least 3-6 months of employment

history in order for you to obtain your very first loan. Having a job that provides

EPF contribution even though your income is not high is

important. Certain banks may not favor if your salary is paid

by cash deposit.

9

SMART Financing Co.

In this scenario, you will need to get your finances in order first. Especially, when you wanted to buy a new property. All the above reasons that might cause your mortgage application decline can be mitigated or overcome. There are many ways where you can start preparing and getting yourself loved by the banks and to step out and grab the next big deal that comes by to you.

Best things come to those who wait is for deals but not for your financial status. Start improving and get yourself prepared to be loanable. Getting your money management right and be ready to dream property when the time come!

10

SMART Financing Co.

About us:

SMART Financing Co was founded by a team of senior bankers and their primary objective is to help consumer to stay abreast on the latest banking policies especially towards Mortgage Financing and to educate consumers on various banking practices.

Gary Chua, one of the founder and speaker has 11 years of banking experience, both local and international banks. He also involved in interpreting the new BNM guidelines & drafting the bank policies before it is approved and practiced.

Together with FREEMEN and FreemindWorks SMART Financing Co have co-created a course for people to learn about creative financing and how you can structure your own portfolio to get more loans from the bank. You can check it out through this website: smartfinancing.asia

Alternatively, if you wish to find out more about the event, you can call 012-7039189 or email to nadia@freemindworks.com.my

Smart Financing Co founders

11

SMART Financing Co.

Gary will be speaking in the Property Outlook 2015 in Penang on the 4th and 5th April, 2015, together with other Speakers who will share about the hot topics in property investment such as affordable housing and how the GST will impact the market. This topics will be shared by Keegan Tan and Michael Tan.

And for the first time in the Northern Region, we have Adrian Wee, also known as the ID King to share on renovation tips and how to make your property attractive and maximise your profits.

Visit www.AboutPropertyInvestment.com to know more. Grab your place now as seats are limited.

SMART Financing Co.