Home Loan

Buying a home in Malaysia? Know your eligibility for a home loan


Becoming a new property owner comes with many benefits. You can do whatever you like without pressure from the landowners. However, if you cannot purchase a home with cash (especially in today’s economy), you can use a housing loan to help you buy your first property.

However, to get loan approval, you must meet some crucial factors, such as gross monthly income, net income, good credit score, etc. We will show you how to calculate your home loan eligibility and whether you can apply for a loan at your financial institution.

Points to Consider Before Applying for a Home Loan in Malaysia

Before applying for a home loan, you must calculate some crucial factors to check your home loan eligibility. Here are the steps to take:

Find out your DSR (Debt Service Ratio)

You can calculate your debt service ratio by dividing your total debt payments by your monthly net income. This factor will tell the lender or the bank whether you represent a risk and if you can pay off your home loan according to your income level. Once you calculate your DSR, you will get a percentage; anything less than 60% is a good DSR.

Ensure your documents are in order

Once you see whether your chosen bank accepts your loan application, you should collect all the essential documents you need to sign the contract, such as proof of income, pay slips, loan application forms, bank statements, existing home loan documents, etc. Ensure to keep them in a safe and organized space to avoid data loss.

Don’t let yourself go bankrupt

One of the most important things is to keep your monthly net income stable. If you want your bank to find you eligible for a home loan, you should have a steady income and always have funds in your account. The bank will see your financial health and determine whether you can regularly fulfill your obligations.

Don’t involve a legal issue

When doing background checks, banks will see whether you have a criminal record or have had legal issues. This factor will also influence your eligibility for home loan; if you have had trouble with the law, you may not be eligible for a home loan. Multiple banks will see you as an unreliable borrower.

Improve your credit score

To gain your bank’s trust as a borrower, you should improve your credit score and make your financial institution believe you can handle your payments. A good credit score will bring you more benefits during the loan approval process. Thus, work on your credit repayment to build your credit score.

Different Types of Home Loans in Malaysia

Now that you know what you need to raise your chances of getting a home loan, you should learn about Malaysia’s different types of loans. Here are some housing loan plans:

Islamic Home Loan

Shariah-compliant home loans, or Islamic home loans, are unique loan plans that adhere to Islamic principles. These loans are asset-backed, meaning the bank will have some security for repayment while complying with Islamic laws. These loans usually have lower interest rates than other housing loan plans.

Full-Flexi Loan

As the name suggests, with a full-flexi housing loan, you can choose how to repay your loan to the bank. You can pay automatically using your bank account, pay in advance, or even enjoy lower interest rates. You can also withdraw a specific loan amount if you have paid in advance.

Semi-Flexi Loan

Like a full-flexi loan, a semi-flexi loan allows you to pay off your debt in advance and choose the monthly amount you want to pay. Your bank will also reduce your total interest. However, you must ask your financial institution for approval to pay in advance.

Term Loan

A term loan is a traditional borrowing method. You will have a fixed payment schedule to meet every month and fulfill all your requirements. You can plan your payments and meet all deadlines, but paying anything in advance is not an option.

Home Loan Interest Rates in Malaysia 2023

Your residential loan will depend on several factors, such as the maximum loan tenure, loan amount, property value, etc. Moreover, the interest rate may vary from time to time.

Therefore, the best recommendation is to learn how to calculate it. The equation is simple. Take the housing loan interest rate (SBR) and add a profit rate. At the moment of writing this article, the current SBR is 2.25%, and OPR is equivalent. The current housing loan interest rate (on April 1st, 2023) is about 4.1%. Therefore, the interest rate would be the SBR + 1.85%.

What are the factors affecting your home loan eligibility by salary?

To calculate home loan eligibility, you must calculate your salary and see how it affects your application.

Below, you will see some factors that influence your eligibility for a home loan regarding your salary:

Debt-to-service Ratio (DSR)

The debt-to-service ratio calculates your gross monthly income level and debt payments. By dividing these two, you will see a percentage (DSR) to help you determine your eligibility for a particular loan amount.

For example, if you have around 7,500 MYR monthly debt payments and about 22,000 MYR monthly income, your DSR percentage will be 34%, which makes you eligible for a loan. You can use this home loan eligibility calculator to see whether you can apply for a specific loan amount.

CCRIS Records

Central Credit Reference Information System, or CCRIS records, will give the bank insight into your credit and financial history. The bank will see how you handle your money and debt and whether you can borrow another loan. These records guarantee you can return the loan to a financial institution.

Net Disposable Income (NDI)

Net Disposable Income refers to your household’s assets after taxes and other deductions. You can determine your NDI by calculating your monthly income and subtracting all taxes you pay from your salary. NDI will show your financial health and whether you can afford a housing loan.

CTOS Report

CTOS (Credit Tip-Off Service) is Malaysia’s Credit Reporting Agency (CTA). It has an insight into all your financial activities, such as your existing home loan, loan amount, credit score, payments, legal liability, etc. Your CTOS report holds your history and will impact your reputation. Your bank will determine whether you are eligible for a loan according to your CTOS report.

Conclusion: Get Ready to Purchase Your Dream Home

If you want to purchase a home in Malaysia via a loan, this guide will help. We have presented some crucial factors that will determine your housing loan eligibility and how you can estimate your probability of approval. Our short guide has covered all the basics you need to start your property journey in Malaysia with your financial institution’s help.

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