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9 Tips on How to Increase Your First Home Loan Approval in Malaysia


Written by Fazrina Fezili

"Your mortgage application is rejected!"

Getting rejected for a home loan can be disheartening, especially if you're a first-time buyer who excited about owning your own home. In Malaysia, evolving banking landscape, where competition is fierce, it's essential to navigate the complexities of loan approval processes and ofcourse with only simple mistakescould lead to your home loan application being turned down.

But by understanding these 9 reasons why your first home loan application may have been rejected in Malaysia in 2024 can help you avoid common pitfalls and increase your chances of approval.

Why Your First Home Loan Application Might Get Rejected in Malaysia 2024

1. Applying at the Wrong Bank

Whenever you apply for a first time home loan, remember that not all banks have the same lending policies. Each bank follows a different set of requirements, and your application may be approved by one bank but rejected by another. Just repeatedly applying at multiple banks without understanding their criteria can harm your chances. Bank Negara Malaysia (BNM) tracks loan applications and statuses, so multiple rejections can affect your future applications.

Keeping your Central Credit Reference Information System (CCRIS) clean is essential for first time home loan applicants, as it influences banks' decisions and understanding banks' preferences is crucial to avoid wasted time and higher rejection possibilities, such as:

  • Not meeting the minimum age requirement
  • Not in the right income band
  • The bank does not offer financing on such property or at that particular location

2. Inadequate Credit Score

Your credit score is a numerical representation of your creditworthiness based on your credit history, so first time home loan applicants need to 'take note' banks rely heavily on credit scores to assess your creditworthiness and to assess the risk of lending to you. A low credit score indicates a higher risk for lenders, leading to potential rejection of your loan application.

Some of the common factors that lead to being a less attractive candidate for a first time home loan are as follows:

  • Late payments
  • Defaults
  • High credit card balances

What should you do?

Ensure timely payments, keep credit card balances low, avoid applying for new credit unnecessarily, and practice responsible credit usage to maintain a healthy credit score.

3. Employment Stability

Lenders typically prioritize borrowers with stable employment histories when considering first-time home loan applications. This preference stems from the assurance that a steady job equates to a reliable income source, which in turn increases the likelihood of timely mortgage repayments. Frequent job changes or extended periods of unemployment can raise red flags for lenders, as they may interpret such instability as a potential risk factor for defaulting on the loan.

For first-time homebuyers, in particular, showcasing a consistent employment record is crucial. Lenders scrutinize employment stability more closely in these cases because first-time buyers often have less established credit histories and financial profiles compared to repeat buyers. Thus, any inconsistencies or gaps in employment could amplify concerns about the borrower's ability to meet mortgage obligations.

4. Insufficient Income

When applying for a first-time home loan, banks thoroughly assess your income to ensure that you can afford the mortgage payments. Your income plays a critical role in determining affordability. If your income isn't adequate relative to the loan amount, your application may face rejection. 

To enhance your chances of approval for a first-time home loan, it's essential to consider strategies to increase your income. One way is to explore supplementary employment opportunities, such as part-time work or freelancing gigs, to boost your overall earnings. Additionally, pursuing higher-paying job opportunities or seeking career advancement can significantly improve your income level, making you a more favorable candidate for loan approval.

6. Incomplete Documentation

Complete and accurate documentation is vital for a seamless processing of a first-time home loan. Any missing or incorrectly provided documents can significantly hinder the process, potentially resulting in delays or even rejection of the application. Thus, it's crucial to meticulously review all required documents and ensure their accuracy before submitting them to the lender. You can always check full list here in Housing Loan Document that you need!

7. Unapproved Property Type

When seeking a first-time home loan, it's essential to understand that not all properties automatically qualify for bank financing. Several factors can influence a property's eligibility, including its location, condition, and legal status. Let's delve deeper into these factors:

  • Location: The location of a property can significantly impact its eligibility for financing. Banks and lending institutions often assess the desirability and marketability of a property's location. Factors such as neighborhood trends, proximity to amenities.
  • Condition: The condition of the property is another critical factor in determining its eligibility for financing, especially for first-time homebuyers. Lenders typically prefer properties that are in good structural condition and meet certain safety standards. Issues such as extensive repairs needed, structural deficiencies, or health and safety hazards can raise red flags for lenders. 
  • Legal Status: Legal issues surrounding a property can also impact its eligibility for financing. This includes factors such as zoning regulations, property title disputes, liens, or encroachments. Lenders typically conduct thorough title searches and property assessments to ensure there are no legal impediments that could jeopardize their investment. 

8. Lack of Down Payment

Providing a substantial down payment showcases your dedication to the property and decreases the amount you need to borrow. This financial commitment is crucial because it assures lenders of your ability to manage the loan responsibly. Insufficient funds for a down payment can result in rejection or less favorable loan terms, such as higher interest rates or stricter repayment conditions. The down payment serves as a security measure for lenders. By putting down a significant amount upfront, you demonstrate your capability to handle homeownership costs and mitigate the lender's risk.

For first-time homebuyers, saving for a down payment can be challenging, but it's essential to diligently set aside funds to meet the required down payment percentages. This often involves creating a budget, cutting unnecessary expenses, and exploring potential sources of down payment assistance or grants. Some programs specifically cater to first-time buyers, offering financial support or lower down payment requirements to help them achieve homeownership.

9. Poor Financial History

Your financial history plays a crucial role in determining approval. Lenders evaluate your creditworthiness based on past financial behavior, including any defaults or bankruptcies. These negative marks can raise red flags for lenders, indicating higher risk and potentially leading to rejection of your loan application.

To improve your chances of approval, it's essential to focus on rebuilding your credit and demonstrating financial responsibility. This involves taking proactive steps such as:

  • Credit Repair: Start by obtaining a copy of your credit report from major credit bureaus and review it for any inaccuracies. Dispute any errors and work on resolving outstanding debts or disputes that may negatively affect your credit score.

  • Timely Payments: Ensure that you make all your payments on time, including credit card bills, loan installments, and utility bills. Late payments can further damage your credit score and raise concerns for lenders.

  • Reduce Debt: Aim to pay down existing debts to improve your debt-to-income ratio. Lowering your overall debt burden demonstrates financial responsibility and makes you a more attractive candidate for a home loan.

  • Establish Savings: Lenders also consider your savings and reserves when assessing your ability to handle mortgage payments. Build up a savings fund for a down payment and emergency expenses to show financial stability.

  • Budgeting: Create a realistic budget to manage your finances effectively. Track your expenses and prioritize saving for your future home while also meeting your current financial obligations.

  • Seek Professional Guidance: Consider consulting a financial advisor or credit counselor for personalized advice on improving your financial situation and preparing for homeownership.

In conclusion, the rejection of a mortgage application can be a discouraging experience, particularly for first-time homebuyers in Malaysia. In the dynamic banking landscape of 2024, where competition is fierce, understanding the intricacies of loan approval processes is paramount. By delving into the common reasons for rejection outlined above, applicants can arm themselves with knowledge to avoid pitfalls and enhance their chances of approval.


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