# Why the bank did not approve my home loan application and what I could do about it

If you are a first-time home buyer looking to buy a property, chances are you are hoping for this: The bank will approve my home loan application. You may have read that the bank would lend you 90 percent of the home price while you have to be prepared with the 10 percent downpayment for the home. Sounds simple but it’s not that straightforward these days. There are two potential reasons for this.

#1 – Banks need to be prudent. When borrowers fail to pay for their loans for 6 months, these loans will be classified as Non-Performing Loan (NPL) In Malaysia, the NPL for the banks have been on an increasing trend even if the number remains under control. Many did say that when the moratorium is really over, then we could see a spike in the NPL. Latest numbers here for reference: NPL Malaysia is on the way up. How up? This is why the banks are now doing their best to manage this and are more conservative than ever.

#2 – Those prices may just be too high. In Malaysia, the valuation of homes are usually based on the recent transacted prices from the Valuation and Property Services Department (JPPH). The valuer would use this as a comparison for the valuation of the home we are about to buy. If the recent transactions showed that many transactions of the same type of home is lower, then the valuation for the home would now be lower. A calculation example:

The home we wanted to buy: RM500,000

The home loan we wanted is 90 percent: RM500,000 x 90% = RM450,000

Downpayment needed is thus RM500,000 (home price) – RM450,000 (loan amount) = RM50,000

Assuming the recently transacted property prices for the last 5 units is RM450,000

The valuation for the home we wanted to buy may become RM450,000

The home loan based on 90%: RM450,000 x 90% = RM405,000

Downpayment needed is thus RM500,000 (home price) – RM405,000 (loan amount) = RM95,000

In this case actual loan amount from the bank according to our calculation is no longer 90%. It’s closer to 80% instead. This means that the potential home buyer would now have to try doing either of these two things if they still want to proceed to buy that dream home.

#1 – Negotiate until the home price becomes RM450,000 with the seller. If the seller is willing to sell it at this new price, then the buyer would not need to find the extra downpayment amount needed. This is usually very tough because not many sellers would want to sell lower than the price they bought. In fact if they sell lower, they may even have to fork out the difference if the home was still under a home loan and the amount they owed to the bank is equal or higher than RM450,000

#2 – Find that extra downpayment necessary. If this is indeed the dream home, the one and only home which you really want and you do not think there are any other better choices, then please go and find that extra RM45,000. What will happen is that with a lower loan amount (80% versus 90%), your monthly repayment is also lower too. Perhaps that is also a good thing as you may now have more money to invest too. Hopefully the money is not spent on something unnecessary every month.

There’s also that other CLEAR option too

Yes, the other option beyond just the loan amount part is to look for another property instead. In H1 2020, we had a total of 75,000 residential property transactions which meant that choices are indeed aplenty in Malaysia. Whether it’s primary or secondary market or even the auction market, there may be choices where the valuation has stayed the same and the price is what you could afford. Secondary market needs not be a secondary choice yeah (article here).

This is why the bank may NOT approve your 90 percent home loan application

It’s not necessary to blame the bank. It’s just how the market goes. In fact, the valuation will do us a great favour. It’s not a clever decision to buy a home which is overpriced versus the market. Else, we may have to hold on to this property for a long time before we could sell it higher than price we bought.

Do note that if that home we are about to buy happened to be right next to the mother-in-law’s place and her cooking is exceptionally good, please find the extra downpayment and buy that home. There’s no other considerations necessary. Happy understanding.

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##### Charles Tan

Charles is Founder of kopiandproperty.com He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. kopiandproperty.com is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.