Be aware of the traps that may cost you your mortgage application

By Yuri Azrani

By Yuri Azrani

We have all heard of the horror stories from our uncles, our colleagues or from just about anyone wanting to buy a home. They show up at the bank with all the relevant documents and, BAM! Loan application rejected.

They are left wondering what went wrong.

Many things in your daily life could ruin your credibility, and once that’s gone it won’t be easy securing a loan.

Pay attention to these common factors that affect your loan ability and you may just save yourself from a slew of rejected applications.

1. Late payment of bills will affect your credit score
A credit account or credit card can be the best thing ever when you’re on a spending spree, but this could also be your bane at the end of every month.
Regardless of how heartbreaking it can be, you MUST pay your credit card bills on time.

Why does this matter? Because this will be a major determinant of your credit score.

The score system tells how well you manage your credit accounts. The lower your score, the less trustworthy you are to loaners and banks.
On-time bill payments will influence your score; the sooner you pay the better.

2. You have more credit cards than you can afford
Having many credit accounts to your name may increase your spending power, but it could destroy your loan ability.

Each time you apply for a loan, the lender will most likely conduct a credit inquiry. This gives the lender a rough estimate on how well you manage your debts.

Seeing mountains of credit accounts tied to your name alone may just frighten the lenders enough for them to reject your loan application.

3. Try not to spend over your credit limit
Credit utilisation gauges how much of your credit limit is used. A general rule of thumb is don't spend more than 30% of your limit. So if your limit is RM10,000, try not to spend more than RM3,000.

Be a tad more frugal. Spending more than 30% can raise alarm bells when you apply for a loan.

4. Old is gold when it comes to your credit accounts
Just like your old car that has seen better times, you may be thinking about getting rid of that old credit card or account.

Stop right there. Hold on a bit longer to those accounts. One huge factor in a good credit score is your credit history, essentially how long you’ve managed that account.

The longer you maintain an active credit account, the more responsible you seem to the lenders. Old is gold when you show you can manage long-term loans and are able to make repayments.

5. You jump from job to job too soon
Variety is the spice of life, but take your time at your job. Hopping from job to job or employer to employer too soon can pose a threat to your loan application.

Banks and other lending agencies place a high stake on job stability, observing an applicant’s working consistency and gauging the security of their loans. Some banks even impose a condition that a person must be tied to a workplace for at least three years.

6. Consistent Rejection
As vague as it sounds, this is quite a common occurrence. Just like trying to get a boyfriend/girlfriend during your younger days, there is no doubt you’ve had to deal with the dread of rejection. In terms of loans, consistent rejection in a short amount of time may pose a major long term issue.

If you’ve been rejected by a lender several times before, this could jeopardise your future attempts as well. See it from the eyes of the lender, if a large percentage of your loan applications ended in failure, wouldn’t the current lender be weary of you as well?

It is advised to wait for some time after being declined before applying for another.

7. Being a guarantor for someone financially unsound
Relationships are the most meaningful things in life, but never let the maintenance of these relationships inhibit your goals. Before being a guarantor for another person’s loans, make sure he or she is trustable enough to handle that responsibility.

A guarantor is just what its name says, a guarantor co-signs a loan with the original applicant. The guarantor is responsible for assuring the payment is reimbursed. In any case the applicant does not manage to make the payment, this could harm your credibility in future transactions or loans.

8. Faulty Documentation
Papers, forms, documents, files, these are the modern day essentials in every transaction, even from the day you were born your name was written on a piece of paper. If anything goes wrong with those papers, it could wreck your life.

Same goes with loan applications, make sure every detail is spot on, double, or even triple check to assure you’ve got your facts right. Small mistakes, typos etc. can play a major role in hindering your progress as it might cause your information to be void.

Most importantly, stating false information or lying on your documents is a despicable act that could end your career if exposed and is borderline illegal. Be truthful in your papers and be the honest person your parents always wanted you to be.

9. You’re not making enough money yet
Say you’re applying for an RM300,000 loan which comes up to a monthly payment of RM1.500, all while your monthly income only hovers at RM2,000. Without a second thought, the lender declines your application.

When you apply for a loan, income will be a major determinant. The lender will evaluate whether or not your income is sufficient to make the monthly payment while also taking your personal needs into account. This is because the lender needs assurance that you can manage the payments and so that you don’t starve to death. Be patient, get that pay raise and soon enough you’ll be able to.

10. Maybe you’re growing old
Age can be another factor in loan applications. The closer you are towards retirement, there is a chance lenders may not approve of your loan. Once you hit retirement there’s no steady income, in turn there’s no guarantee for the lenders.