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Top 7 Reasons Your Home Loan Application Got Rejected in Malaysia

Mortgage and housing loans in Malaysia are among the most common personal loans for Malaysians. However, most mortgage applications face rejection for various reasons, such as credit card debts, poor credit history, bad credit scores, etc.

Fortunately, you can get approved for a mortgage loan with some tech knowledge and financial planning. Gone are the days when personal loans were the subject of personal evaluation.

Rapid economic growth and industrial development have made lenders, banks, and financial institutions more competitive. In such a fast-paced landscape, many things have changed.

One such thing is the systematic approach to processing mortgage loans. Most financial institutions take great care when approving home loan applications due to the many risks associated with the assessment.

This cautious approach has led financial institutions to adopt complex eligibility and approval terms and initiate credit scoring systems and qualifying policies that prevent many from becoming mortgage customers.

These complex lending conditions require good credit history and financial health to approve you for the amount of credit line you hope to receive.

Since most mortgage applicants can afford the monthly repayment, let’s delve deeper into how home loans work and the most common rejection reasons to help you find the best home loan in Malaysia.

What is a Home Loan?

A home loan is a form of payment that allows a person to become an owner of a property or, in this case, a dream home. A borrower tends to pay a specific sum of downpayment, post which legitimate financial institutions cover the rest.

In return, the borrower signs a contract (Letter Offer) that sets a monthly repayment deal to repay the loan. In addition, the lender charges the housing loan interest rate throughout the contract duration.

In other words, a home loan is a legal way to obtain the funds for purchasing real estate and making homeownership a reality. Borrowers pay the property price back in monthly instalments over the agreed loan tenure.

How do they work? 

Housing loans are straightforward – the borrower pays back a portion of the received funds and the interest rate.

How much interest you pay depends on several factors:

  • Loan tenure (10-35 years).

  • The interest rate.

  • The lender’s interest rate for the specific type of loan.

  • Existing personal loans.

  • Home loan balance.

  • Outstanding principal amount.

The longer the bond duration, the higher the interest amount you pay. The borrower’s home loan interest rate depends on the lender. Financial institutions determine the housing loan interest rate based on the risk associated with the borrower.

Thankfully, most lenders provide options for borrowers that allow them to save money by qualifying for lower rates. The borrower can mitigate high interest by improving their credit score and paying a larger deposit.

The best way to ensure the most affordable home loans is to use a housing loan calculator to ascertain your monthly repayments and payment schedule, including the total sum you’ll pay over the bond duration.

Best Housing Loans Banks in Malaysia

Here is our comprehensive list of the best housing loans in Malaysia.

  1. AIA Home Loans

Although AIA is the leading Malaysian insurer, the company offers three housing loan programs:

  • Fixed interest rates – housing loans with a fixed annual interest rate over the loan term.

  • Zero moving cost – the borrower pays a higher fixed annual interest, but the lender deducts the insurance fees and legal loan costs from the loan amount upfront.

  • Two-year annual interest – the borrower pays a fixed yearly interest for the first two years, after which the rate changes.

AIA allows borrowers to sell the property without paying the settlement penalty fee.

  1. Bank of China Malaysia Home Loans

Bank of China Malaysia is one of the leading financial institutions in the country. The bank offers housing and property loans to individuals looking to buy residential property under construction or completed real estate.

It’s one of the best Malaysian options for getting a house loan, as the bank offers excellent terms and affordable, variable interest rates. The bank allows you to apply for a housing loan with a variable rate. However, you must provide your property as a security to get approved for the wanted loan amount.

  1. UOB Malaysia Home Loan

UOB Home Loan Malaysia provides full-flexi loan programs. Borrowers can count on numerous advantages like overdraft facilities and daily-to-monthly repayments.

The bank operates under the directive from Bank Negara Malaysia to provide home loans with a maximum bond duration of 35 years and the option for borrowers to secure up to 95% of the property purchase price.

Different Types of Home Loans in Malaysia

Since many people find differentiating the types of personal loans in Malaysia tedious and confusing, we’ll break it down for you to make the purchasing process more straightforward and help you find a home loan that best matches your needs and financial situation.

  1. Basic Term Loan

An essential term loan is the most popular housing loan in Malaysia. It allows you to borrow money over a maximum loan period of 35 years.

The borrower has the advantage of saving money long-term due to the interest rate and monthly instalments included in the monthly repayment.

Basic-term loans are best for people who prefer a strict payment schedule. This home loan type includes a penalty fee for paying off early debt.

  1. Overdraft Loan

Although getting this type of housing loan tends to be a complicated process, eligible borrowers will have the privilege of only paying the interest rate.

Borrowers repay the loan amount by debiting it from their bank accounts. An overdraft home loan doesn’t include a fixed term and allows applicants to reduce the principal loan amount by making advance payments that exceed the agreed interest rate.

However, most banks charge higher average interest rates for this type of home loan.

  1. Semi-Flexi Loan

Semi-Flexi loans combine overdraft and term loans into a hybrid form of a housing loan for borrowers with bank savings. Unlike the term house loan, this housing loan allows applicants to repay the loan amount in advance without additional bank charges.

Semi-Flexi loan approval enables borrowers to get the benefit of lower interest rates. However, they must deposit more funds into their bank accounts to claim this benefit. Those who withdraw their funds will experience higher profit rates for the ongoing month. They can lower the interest rate by making monthly payments.

Even though semi-Flexi loans include higher profit rates, most Malaysian banks offer this home loan type to new and regular clients.

  1. Flexi Loan

The flexi loan offers similar terms to the semi-Flexi loan but is more versatile. Eligible borrowers get the flexibility of making additional payments without notice and can withdraw excess money on demand.

In addition, borrowers won’t have to bother with monthly instalments as the lender automatically deducts the monthly payments from their bank accounts. Borrowers can deposit or withdraw additional funds if they make regular minimum payments.

Most Malaysian banks don’t offer flexi loans and those that do charge maintenance fees for the borrower’s account.

  1. Fixed Rate Loan

A fixed-rate loan maintains the same interest rate for the selected loan tenure. Borrowers won’t have to worry about changing interest rates, making fixed-rate loans ideal for people looking for long-term lending options.

The homeowner can manage their bank charges and predict future payments and additional expenses to avoid irresponsible financial behaviour that could reduce their credit score and look bad on the credit report.

  1. Islamic Loans

Islamic loans are Shariah law-compliant lending solutions for Muslims. Malaysians can tap into the Islamic financing system to choose from various loan options. A Malaysian bank buys a property from the seller on a borrower’s behalf and sells it to the eligible purchaser.

The borrower can pay for the property in two ways:

  1. Government Home Loan

Malaysians can apply for home loans with the Public Sector Home Financing Board (Lembaga Pembiayaan Perumahan Sektor Awam or LPSSA). LPSSA has initiated this financing board to help civil servants become homeowners. Eligible borrowers can apply for seven types of LPSAA loans.

Procedure to Apply for a Home Loan in Malaysia

We recommend hiring a mortgage broker to help you with the documentation, application process, and choosing the best loan program according to your needs and financial circumstances. In addition, here are a couple of things to remember before you put your signature on an official purchase agreement.

  1. Lock-in Period

The lock-in period is the time frame that prevents the borrower from settling their mortgage debt in full. Applicants can only pay the full loan if they pay the penalty fee.

  1. Loan Eligibility

You can use a housing loan calculator to receive an accurate estimation of the eligible loan amount. Your loan eligibility depends on several factors:

  • Your current financial situation

  • Your monthly income

  • Credit history

  • Credit report

  • Credit score

Most Malaysian lenders will require you to submit a property booking receipt, EPF statement, latest EA form, and bank statements to ascertain the type of loan you can get and how much you can borrow.

  1. Purchase Agreement

A mortgage broker can also help you prepare the purchase agreement and forecast the fees you must pay to obtain real estate legally. The common charges include disbursement fees, legal costs, and stamp duty on the loan amount.

  1. Mortgage Insurance

Malaysian borrowers can opt for Takaful mortgage insurance, MLTA, or MRTA. Most local lenders will ask you to present a mortgage insurance policy as a security.

Compare Home Loan Interest Rate Malaysia 2022

The current housing loan interest rates depend on Base Rates. Most lenders use BR to determine interest rates and set minimum interest on home loans. However, interest rates are constantly changing. At the moment, the rate range from 1.75% – 2.75%.

Malaysian home loan interest rates depend on the Overnight Policy Rate (OPR). Bank Negara Malaysia sets the OPR as the rate a lender charges a borrower. In other words, the OPR directly affects your home loan interest rate. If the OPR changes, it directly influences the lender’s Standardised Base Rate, Base Lending Rate, and Base Rate.

These factors determine the housing loan interest rates:

  • The loan tenure.

  • The margin of finance.

  • The type of property.

  • Your credit score.

  • The type of home loan.

You can use a home loan calculator to get an estimated interest rate for the type of loan you want to take.

What is the maximum loan tenure for a home loan in Malaysia?

Although the maximum home loan tenure is 35 years in Malaysia, it depends on the mortgagor’s age.

Most Malaysian lenders allow for a maximum age limit of 65–70. In other words, you can apply for a 35-year loan if you’re 30–35.

While a longer loan tenure can allow you to pay smaller monthly instalments, the interest rate and the total loan amount will be higher.

Calculate the Home Loan Interest Rate in Malaysia 

The best, most accurate way to calculate your home loan interest rate in Malaysia is to use a home loan calculator. Enter the following details:

  • The real estate price in Malaysian Ringgit.

  • The down payment amount.

  • The loan tenure.

  • The loan interest rate.

The interest rate calculator will help you estimate your monthly payment, repayment, and principal amount. All Malaysian lenders calculate the monthly home loan interest rate.

List of Documents Required for Applying for a Home Loan 

The paperwork required for applying for a home loan in Malaysia differs for employed and self-employed applicants.

Employed applicants must acquire the following documents:

  • A copy of the purchase agreement.

  • Booking receipt of the real estate in question.

  • Copy of title deed.

  • ID copy (for Malaysians) or passport copy (for non-Malaysians).

  • Proof of income for the last six months, including bank account statements.

  • The latest Form B tax assessment receipt.

  • Latest EPF statement.

  • The financial institution/bank requires additional paperwork.

Self-employed applicants must collect the following paperwork:

  • Property booking receipt.

  • Purchase agreement copy.

  • Copy of title deed.

  • ID copy (for Malaysians) or passport copy (for non-Malaysians).

  • Company registration form (Form 24, Form 49, M&A, etc.).

  • Bank and financial statements for the last six months.

  • Up-to-date tax assessment.

  • The lender specifies additional documentation.

After you gather all the necessary paperwork, you can apply for a home loan.

8 Reasons Why Banks Rejected Your Home Loan in Malaysia  

Malaysian lenders resort to loan rejection for several reasons. Let’s briefly review the top seven reasons for loan rejection in Malaysia.

  1. You chose the wrong bank for filing the application 

Banks tend to have different loan approval policies. What works in one bank won’t work in another. Each financial institution reserves the right to apply unique criteria when processing loan applications. Most borrowers make a mistake by sending loan applications to several lenders simultaneously.

However, they don’t know that the central bank tracks their loan applications. If one lender declines your application, Bank Negara Malaysia marks the rejection in your record. That record makes it difficult to get future loan approvals from subsequent lenders, even if you meet all the eligibility terms.

Borrowers can avoid a record of rejected loans by keeping their Central Credit Reference Information System (CCRIS) clean. A clean CCRIS puts you in favour of the lenders.

  1. Bad credit score 

Your credit score, record, and history are critical to getting your home loan approval. Lenders really on such metrics to assess the associated lending risk.

A credit score tells a lender everything about your financial responsibility and repayment patterns. They will study your CCRIS to assess how risky of a borrower you are.

Here are some of the metrics most lenders look into:

  • The existing CCRIS track record.

  • The number of credit cards a borrower uses.

  • Borrowing frequency in the last six months.

  • Credit utilization and spending.

  • Over-limit status on credit cards.

  • 12-month repayment pattern.

  • Existing personal loans.

A long CCRIS list of outstanding balances won’t help you to get a home loan.

  1. Poor CCRIS status 

A record of late or missed account repayments will earn you a poor CCRIS status. Any account with missed payments you hold might be a red flag in the lender’s eyes. Most financial institutions won’t consider your application due to red flags.

A poor CCRIS status means that a borrower may be unable to meet their monthly repayments. Although some lenders might be flexible enough to restructure your tenure to adjust your monthly instalments according to your budget, most financial institutions will see you as a potential financial risk.

Your previous actions will enter your credit history even if you make timely payments. In addition, factors like legal actions taken against you or enrolling into AKPK will stay in your CCRIS for more than a year.

  1. Record of bounced cheque 

Aside from your CCRIS status, a cheque facility is vital to avoiding loan rejection. Borrowers with a record of two or more bounced cheques will struggle with their loan applications.

  1. Unemployment 

Most lenders require borrowers to present proof of 3–6 months of employment history to approve their loan applications. Unemployed people won’t be able to obtain a home loan in Malaysia.

However, employees have higher chances of getting loan approval regardless of their income. Most banks require an EPF statement to process a loan application. Employees who earn income through cash deposits may not be eligible for home loans.

Previous employment income history, employment confirmation letter, and continuity of employment can improve your chances of getting a home loan.

  1. Unable to provide requested additional documents

Most financial institutions will reject loan applications if borrowers have failed to submit the requested documentation. Income documentation is the most common reason for rejection.

Since every lender has unique documentation requirements, we recommend checking with your financial institution to ensure you have all the paperwork ready upon application.

  1. Declared bankrupt by bank 

If your bank officially declares you bankrupt, you won’t be able to apply for any new loans or financial products. The newspapers publish bankruptcy statuses daily. No matter what legal entity declared you bankrupt, your record remains permanently in CTOS.

  1. Debt Service Ratio (DSR)

The debt service ratio calculates the ratio of your existing debt to income. It’s a critical factor in getting loan approval. DSR is a formula used by lenders to assess the risk and determine the borrower’s affordability level.

Financial institutions will consider the following factors to calculate your DSR:

  • Total mortgage loan

  • Car loans

  • Personal loans

  • Credit card debt

  • Minimum credit card payments

  • Monthly commitment to other loans

These debt obligations will be divided by your net monthly income after deducting SOSCO/KWSP/income tax.

Thankfully, borrowers have two ways to improve their DSR ratio:

  • They can have the lender use their highest income to lower DSR.

  • They can implement better debt management practices.

Borrowers can manage their debt in several ways:

  • Consolidate or pay off fixed repayment debts using long-term repayment vessels.

  • Remove secure loans from CCRIS to improve DSR.

  • Provide proof of the ability to make monthly repayments.

How to maintain a healthy credit score? 

Here are a few tips for improving your credit score and maintaining a healthy credit record.

  1. Payment on time

Making timely payments is the most effective way to establish and maintain a good credit score. Timely debt payment helps borrowers lower their credit risk with eligible lenders.

You can ensure timely payments in several ways:

  • Better organization – keep all your bills and credit card statements in one place to pay them on due dates.

  • Honour payment due dates – making payments before the due date can help your credit score and avoid overdrafts and late penalty fees.

  • Use automatic payments – automatic payments can help you organize your budget according to your pay schedule and ensure you don’t miss a payment draft.

  1. Low Credit card Usage

Manage your credit to keep your credit utilization as low as possible. You can accomplish this goal by keeping track of your spending. Pay attention to your credit card transactions to keep your debt in check.

Avoid heavy ATM credit card usage, and limit your cheque writing. We recommend applying for online banking so you can check your financial status on the go, conduct your transactions with fewer fees, and monitor your current balances.

Online banking will also help you spot any discrepancies in your credit report, which can affect your credit score and history. Finally, avoid maxing out or exceeding your limit on all credit lines you use to avoid negative points on your credit score. The best practice is to keep your credit utilization rate below 30%.

In addition, we recommend paying what you owe in full whenever possible to reduce your overall debt and establish a positive history of responsible financial behaviour. That could help you raise your FICO credit score.

  1. Remain minimum liability

Keeping your CCRIS clean isn’t necessarily a good thing. Many creditors won’t consider loan applications from people with zero CCRIS. On the other hand, banks prefer applicants with minimum liability. Borrowers with clean CCRIS may be viewed as not affordable.

  1. Check your CCRIS and CTOS regularly

You can improve your credit score and history by checking your CCRIS and CTOS and clearing any debt immediately. CCRIS stands for Central Credit Reference Information System. It’s a record that tracks, monitors, and gathers a borrower’s loan repayment behaviour.

Maintained by Bank Negara Malaysia, CCRIS includes your loan debt with Malaysian lenders, your annual repayment history, any existing overdue, and more. Every Malaysian lender has access to your CCRIS report, making it a vital tool for improving your credit.

You can check your CCRIS for free by:

  • Registering as a new user via the eCCRIS portal online.

  • Visiting any Bank Negara Malaysia (BNM) branch offices.

  • Applying for a CCRIS credit report via email.

  • Visiting any AKPK branches.

CTOS is a BNM-permitted credit reporting agency that keeps records of Malaysian credit reports. The agency measures your credit record health. Lenders rely on CTOS to assess the borrower’s credit risk value.

Ranging from 300–850, higher CTOS signifies lower risk, thus improving your chances of receiving loan approval. You can check your CTOS by applying for a CTOS user ID via the official web page.

Final Thoughts 

Although Malaysian lenders may have strict loan approval requirements, borrowers have multiple lending options. Take your time to assess your needs and determine the budget you can spend before you apply for a home loan.

Avoid sending applications to multiple lenders, as that may reduce your chance of getting approval. Each housing loan is unique, with specific terms and conditions. You can avoid loan rejection by taking every step necessary to ensure good credit health and clean history of responsible financial behaviour.

Keep your credit score high by managing your finances and paying your debts before the due dates. Your best option is to hire a mortgage broker to help you weigh your options. Use a touring loan calculator to estimate the outstanding loan amount you can borrow, the applicable interest rate, the outstanding principal balance, and monthly repayment.

A broker will also provide a mortgage-reducing term assurance to improve your chances of buying a dream home in Malaysia.



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