SMART Financing

Co.

SMART Financing
Co.

SMART Financing E-Report

TOP 10 Reasons - Your Mortgage Application Maybe Declined in
2015

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.
W hy your loan is
rejected and does it
means that it is the
end of your
investment journey?

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
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Some of the common

"not preferred
segments" are as follow:

Not meeting the

minimum age
requirement

Not in the right

income band

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.

The bank does not

offer financing on
There
are
many ways
such
property
or atto
skinthat
your
CCRIS and some
particular
of the
below may cause
location

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.

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)

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

Repayment pattern in
the last 12 months

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.

Are you highly

leveraged on
unsecured loan
(personal loan)?

3. Unfavourable Credit Score

Any or combination of
credit cards showing
high utilization (high
spending)
Any credit cards with
over limits status

Banks rely heavily on the credit score engine nowadays in

decision-making. Credit Score engine analyses your repayment
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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.

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.

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
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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.

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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).

All
Commitment

DSR

Net Income
(after Tax & EPF deductions)

Formula

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%.

New
Application

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

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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
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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.

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.

The Pice de rsistance 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.

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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!

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.

Smart Financing Co founders

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 [email protected]

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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.

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