Most of us borrow from the bank, using mortgage in order to fund our investment/purchase. I personally do not know the exact formula used by bank to evaluate an individual’s loan limit. However, I would like to share with you a way to gauge your loan ability to answer the main question here: How much I can borrow from the bank to invest in this property?
First thing first, we need to know:
1. CCRIS (Central Credit Reference Information System) – This system is created by Bank Negara Malaysia (BNM) to synthesize credit information about a borrower or potential borrowers into standardized credit reports. This report consists of:
(i) Outstanding loans – Housing loans, hire purchase, credit cards, personal loans, overdraft etc. Pay attention on payment behavior and legal status of any account under your name
(ii) Special Attention Accounts – Usually accounts deemed Non-Performing Loan (NPL), or under special debt management schedules
(iii) Loan or credit facility applications made in the past 1 year – How many were approved / rejected. This is the reason why we should not apply multiple banks at once.
You might have directly or indirectly created a bad impression to the bank if:
● Your account is under legal status or special attention
● Missed/Late repayments, bounced cheque. Submit loan application only after 12 months of your last missed/late repayment.
● High Debt Servicing Ratio (DSR), total outstanding debts over income. Pay/settle some of your loans/credit lines before submitting a loan application
● Multiple active loans/credits application, use home loan comparison tool or approach relevant specialist to apply selectively for the best product.
It’s important to have visible credit history so that it does not hurt your credit score. Make sure that you have at least one active credit facility and pay on time.
2. CTOS (Credit Tip-Off System) – It is an electronic library of historical information captured from publicly available sources and archive as such. Updates are carried out by CTOS whenever it captures case settlements from parties involved namely the plaintiff, defendants, their lawyers or new information from related source documents.
It’s widely used by the majority of the country’s Financial Institutions, Commercial Companies & Businesses, Legal Firms and other institutions. Unlike CCRIS, CTOS is owned and managed by a Malaysian company, collating information on Individuals and Companies from various sources found in the public domain which is then formatted into an electronic database which provides for efficient checking process upon loan application.
Now, assuming that you have fulfilled the two pre-requisitesabove. We can follow a simple rule which I picked up through my preious deal. If you have any forms of debt such as outstanding loans, credit card balance etc, just make sure that it does not exceed 2/3 of your net income/salary. For instance, you have:
Net salary: RM5,000
Monthly credit card: RM1,000
Monthly car loan: RM1,000
Net income after deducting commitment: RM3,000
Loan amount he can commit: RM3,000 x 70% = RM2,100
Basically, this is how I estimate my personal credit limit so that I know the amount of bank loan that I can commit. Let’s look into DSR here in particular to understand how it affects number of loans that we can borrow. This is an important question eapecially for season real estate investors who like to leverage on housing loans.