If you’re considering buying a house in Malaysia, one of the first things you’ll likely consider is housing loan eligibility. Knowing this information is crucial because it can help you determine what kind of property you can afford and how much you’ll need to save for a down payment. The money you can borrow for a home loan in Malaysia will depend on several factors, such as your monthly net income, credit history, and the property’s value. Additionally, different banks and financial institutions may have varying policies and interest rates for personal loans, affecting how much you can borrow. If you’re unsure where you stand and have asked yourself, “How much can I borrow for a home loan in Malaysia” too many times, this guide will provide all the information you need to quit renting forever. Main Factors to Consider When Applying for a Home Loan in Malaysia When applying for a housing loan in Malaysia, you should consider several key factors to ensure you’re making the right decision for your financial situation. Some of the key elements include: Interest Rate: Housing loan interest rates are crucial when applying for home loans. The interest rate determines how much you’ll pay for the loan. So, a higher interest rate means you’ll pay more for the total monthly commitments. Loan Tenure: The loan tenure is the period during which you will be repaying the loan. A longer tenure typically means lower monthly installments for a longer duration, while a shorter tenure means higher monthly payments that last shorter. The maximum loan tenure in Malaysia is 35 years or up to the age of 70, whichever is earlier. Loan Amount: The loan amount you’re eligible for will depend on factors such as your gross income, credit history, and financial obligations. Consider the amount you need to borrow, and whether it’s affordable based on your monthly net income and additional payments, you might have. Down Payment: The down payment is the sum you need to pay upfront toward the purchase of the property. Since a larger down payment usually signifies better financial health, it often translates into a shorter loan period or lower monthly repayments. Fees: When applying for a home loan, there may be various charges involved, such as processing fees, valuation fees, and legal fees. Factor in these costs when deciding which loan to apply for. Repayment Flexibility: Consider the monthly repayment options available, such as making advance payments or paying off the loan amounts in full before the end of the home loan tenure without the additional monthly expenditure. Eligibility Criteria: Each home loan product will have its eligibility criteria, so ensure you meet the loan approval requirements. How much am I eligible to borrow for a home loan in Malaysia? When applying for a home loan, you want to know more about your eligibility for a housing loan in Malaysia. The details of your eligibility and total monthly commitment will depend on many factors. Generally, Malaysian banks and financial institutions offer home loans with a maximum loan-to-value (LTV) ratio of 90%, meaning you can borrow up to 90% of the total property value. The bank will typically consider your net monthly income, monthly expenses, and any existing debt obligations to calculate your home loan eligibility. Your credit score and credit history will also play an essential role in whether you get your home loan approved or not. For instance, if you have a net monthly income of RM6,000, a good credit score, and no other debt obligations, you might be eligible for a home loan with a maximum monthly repayment of around RM2,100 (with a housing loan interest rate of approximately 4.5% and a loan tenure of 30 years). Based on this, your maximum borrowing capacity would be around RM415,000. However, it’s important to note that this is only an estimate, and each bank or financial institution may have different loan policies and variable interest rates. Therefore, comparing loan options will help you find the best deal for your financial situation and goals. How to boost your home loan eligibility? You might want to boost your home loan eligibility if you want to get maximum loan tenure, fixed interest rate, maximum loan amount, semi-flexi loan, or full-flexi loan. Here’s how you can do that. Maintain a Healthy Credit Score Maintaining a healthy credit score is critical when applying for a home loan. A credit score represents a person’s creditworthiness formed on their credit history. Lenders use credit scores to assess the risk of lending money to a borrower. A higher credit score indicates that the borrower is more likely to make timely payments and is, therefore, a lower risk for the lender. CCRIS and CTOS reports are crucial in helping you maintain a healthy credit score, and you can learn more about them here. CCRIS: What is it? CCRIS stands for the Central Credit Reference Information System, a credit reporting system in Malaysia managed by the Credit Bureau of Malaysia. The system collects and maintains credit-related information of individuals and businesses who have credit facilities with financial institutions in Malaysia, such as banks and credit card companies. Understanding Your CCRIS Report Understanding your CCRIS report is vital because it can affect your ability to get future credit and the actual amount received. You want to inspect your CCRIS report during your loan application. You can request your CCRIS report from the Credit Bureau of Malaysia or other credit reporting agencies in the country. About CTOS CTOS (Credit Tip Off Service) is a credit reporting agency in Malaysia. It’s a central credit reporting system focused on collecting and maintaining credit information on individuals and businesses. CTOS provides credit reports to institutions with financial products, credit grantors, and other companies that need to assess the creditworthiness of potential customers. How to read your CTOS Report? Reading a CTOS report can be overwhelming if you aren’t familiar with the layout and terminology. Nevertheless, the main sections of a CTOS report include personal information, credit summary, trade references, legal and regulatory information, inquiry information, and the final CTOS score. Why do CCRIS and CTOS reports matter? CCRIS and CTOS reports provide lenders with crucial information about your creditworthiness. These reports help lenders assess the risk of giving you a housing loan and make informed decisions about whether to approve your loan. Tips to Improve your CTOS and CCRIS Reports Improving your CTOS and CCRIS reports can take time and effort, but it is possible with some good habits and strategies. By paying your bills on time, reducing outstanding debt, using credit responsibly, monitoring your credit reports regularly, and maintaining a good credit history, you can quickly improve your CTOS and CCRIS reports. Find out your Debt Service Ratio (DSR) How is your debt service ratio calculated? The DSR is a financial ratio used to measure a borrower’s ability to service their debt obligations. It’s calculated by dividing the borrower’s total debt obligations by income. The resulting percentage represents the proportion of the borrower’s income that’s required to service their debt. Understanding the Range of DSR DSR of 30% or lower: A DSR of 30% or lower is generally considered reasonable and indicates that the borrower has a low debt burden and a high ability to service their debt obligations. DSR between 30% and 40%: A DSR between 30% and 40% is considered moderate and may indicate that the borrower has an average debt burden but can reasonably service their debt obligations. DSR between 40% and 50%: A DSR between 40% and 50% is considered high and may indicate that the borrower has a high debt burden and may struggle to service their debt obligations, especially in the event of a financial emergency. DSR below 60%: A DSR below 60% is healthy and anything above it is considered borderline and may indicate that the borrower has an unsustainable debt burden and is likely to default on their debt obligations. However, some banks might even accept DSR up to 85%. This will finally depend on the banking institution you choose. Tips to Enhance Your DSR If you have a poor DSR range, you might want to implement changes to enhance your DSR. For example, you can pay off high-interest debt, reduce your debt-to-income ratio, increase your income level, refinance your debt, create a budget, or avoid taking on new debt. Ensure your documents are in order You must ensure all your documents are in order when applying for a home loan. That includes your NRIC, 6 months PAYSLIP, KWSP DETAIL STATEMENT, 6 months bank statement, 2 years income tax (ad hoc document), and saving proof (if any). Whether you’re an employee or a business owner, learning about your income type is essential. You might also need to provide documents related to the property you intend to purchase, such as the sales contract (Booking Form, Draft SPA, Property Title or Geran) and property appraisal report. Having all your documents in order can help speed up the loan approval process and increase your chances of getting approved. The following is a brief overview of the types of income. Difference Between Fixed and Variable Income Fixed income refers to income that’s paid out at a fixed rate regularly. This income is usually earned from investments such as bonds or annuities. The income earned from fixed-income investments is typically consistent and doesn’t vary, hence the term “fixed.” Variable income, on the other hand, refers to income that isn’t fixed and can vary from month to month or year to year. Variable income is typically earned through employment, such as commissions, bonuses, or tips. The variable income earned can vary based on performance, sales, or business conditions. For a Business Owner Fixed income for a business owner refers to revenue earned through contracts, leases, or other agreements that provide a fixed payment amount over a specified period. Variable income for a business owner refers to revenue that can vary monthly or year to year, such as sales revenue. Business owners who sell products or services may experience fluctuations in their revenue depending on market conditions, seasonality, and other factors. Maintain an excellent employment record Maintaining an excellent employment record is vital for career advancement and job security, which essentially translates to your credit health, mortgage insurance, and other financial obligations. You can improve or maintain an excellent employment record by following these tips and tricks: Be punctual and reliable; Communicate effectively; Maintain a positive attitude; Be a team player; Continuously improve your skills; Follow company policies and procedures. Comparing Home Loan Interest Rates of Different Banks in Malaysia 2023 Housing loan rates are changing every year. If you want access to the most recent information, here you can find out more about the home loan interest rates of different banks in Malaysia for 2023. AIA Fixed Rate Mortgage 4.4% interest rate 5-year lock-in period RM2,681.05 new monthly repayment Affin Bank Home Loan 4.0% interest rate No lock-in period RM 2,189.78 new monthly repayment Al Rajhi Home Financing-i 4.0% interest rate 5-year lock-in period RM2,273.23 new monthly repayment Alliance Bank Conventional Home Financing 4.2% interest rate 3-year lock-in period RM2,137.80 new monthly repayment AmBank Home Loan 4.2% interest rate 5-year lock-in period RM2,176.03 new monthly repayment RHB Home Financing 4.5% interest rate 3-year lock-in period RM2,245.22 new monthly repayment Understanding Overnight Policy Rate or OPR The Overnight Policy Rate (OPR) is a benchmark interest rate typically set by a country’s central bank, such as Bank Negara Malaysia. The OPR is the rate at which commercial banks can borrow money from the central bank overnight to meet their reserve requirements or address short-term liquidity needs. The OPR is an essential tool for monetary policy, as changes in the rate can affect the overall economy. When the OPR is raised, commercial banks must pay more to borrow from the central bank, which can lead to higher loan rates for borrowers. That can help to control inflation and reduce the risk of economic overheating. Conversely, when the OPR is lowered, commercial banks can borrow money at a lower cost, stimulating economic growth by making borrowing more affordable. The OPR is typically reviewed and adjusted periodically by the central bank based on economic conditions and other factors. Financial markets closely watch the rate and can significantly impact the value of currencies, stock prices, and other financial instruments. What is the impact of OPR on your home loan? As previously mentioned, the OPR can affect the interest rates that you pay on your mortgage. Here’s how. Interest rate changes: When the central bank raises the OPR, commercial banks may increase their interest rates to maintain profitability. That can lead to higher interest rates for borrowers, including those with home loans. Conversely, when the OPR is lowered, commercial banks may reduce their interest rates, making borrowing more affordable. Monthly payments: Higher interest rates can increase your monthly mortgage payments, making it more challenging to manage your household budget. Lower interest rates can decrease your monthly payments, giving you more disposable income for other purposes. Loan tenure: Higher interest rates can also extend the tenure of your home loan, meaning you’ll need to make payments for a more extended period to pay off your mortgage fully. Lower interest rates can shorten your loan duration so you can pay off your mortgage much sooner. Conclusion: Malaysia: Easy Availability of Low-interest Loan While Malaysia has a competitive lending market with multiple banks offering various loan products for a long-term commitment, it’s important to note that extensive research or expert help is required to find low-interest loans for your needs. With that in mind, you need to explore different options regarding bank charges, maintain a healthy credit score and get your papers to apply for a home loan.