In a joint statement, The Association of Banks in Malaysia (ABM) and The Association of Islamic Banking Institutions Malaysia (AIBIM) wish to assure the public that their member banks which comprise the commercial banks and Islamic banking institutions which operate in Malaysia will continue to provide home financing facilities to eligible customers.
For first time home buyers, banking institutions also offer special home financing packages to suit their needs. Home buyers should work with their financiers when making the suitability and affordability assessments for any facility applied for to pave the way for more robust financial management on the part of the customers. Commercial banks and Islamic banking institutions are committed to playing their role in this process.
There are various types of home financing offered by commercial banks and Islamic banking institutions targeted at specific segments of buyers. First time home buyers may want to consider applying for Government schemes such as “Skim Rumah Pertamaku” for assistance in their property purchase. Some other financing options that home buyers should consider are “MyDeposit” or also known First Home Deposit Scheme, PR1MA HOPE Home Assistance Programme, Rent to Own Programme under PR1MA, to name a few.
Based on a recent survey, the top reasons why banking institutions decline home financing applications are due to the applicant having a high debt service ratio, an adverse credit history, insufficient income, or weak documentation/ banking records to support the application.
Buying a home is a major financial purchase and a home financing facility usually forms the highest value item of a customer’s debt portfolio. Thus it is crucial that banking institutions establish that a customer has the financial capability to make repayments/payments during the financing tenure.
Generally, an evaluation of any application for financing would be based on how an applicant matches up to a set of criteria encompassing these 5 broad areas (or the 5Cs of credit as they are often referred to) namely, character, capacity, collateral, conditions, and capital.
Factors normally considered in examining an applicant’s character are (but not limited to):
- Past records of the customer or credit history;
- Stability and duration of his employment/ business;
- Experience and qualification; and
Capacity contemplates the customer’s ability to pay and handle the proposed new level of debt. Some factors which are taken into consideration are income, financial obligations and expenses as well as age.
Not all types of financing will require collateral. Be that as it may, an applicant with a weak score in the other Cs may be able to strengthen his application by offering security or a guarantee.
This will prompt a banking institution to assess whether the customer’s employment or business will withstand the vagaries of the economy, social, political and international environments, government regulations, competition or changes in the banking institution’s policies.
While household income is expected to be the primary source of repayment/payment, capital represents the savings, investments, and other assets that can help repay/pay the financing facility.