Buying Your First Home? Here Are 7 Common Mistakes To Avoid When Applying For A Loan

So you can be better equipped as you prepare to apply for a mortgage.

Cover image via @spacejoy (Unsplash) & @schluesseldienstvergleich_eu (Unsplash)

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Buying your first home is undoubtedly one of the most exciting milestones in life

For most people, the process of being a homeowner comes with responsibilities that include saving for a downpayment and securing a home loan or mortgage.

When applying for the latter, you usually need the necessary requirements in order, which often entails documents such as several months of payslips for evidence of income sources, and more.

In collaboration with Syarikat Jaminan Kredit Perumahan Berhad (SJKP), here are seven common mistakes you may want to avoid when applying for a mortgage:

1. Making big purchases on your credit card

You may be thinking about the interior design of your new home, and intend to furnish it with the latest furniture designs or electronics systems. However, you may want to consider if you'll be paying for them with your credit card.

Racking up a credit card bill you can't afford to pay back in full may not be in your best interest when you have a mortgage later on. The costs can add up over time, causing you an endless cycle of debt payments. Plus, it could jeopardise your mortgage approval since your credit score might be affected.

2. Having a lot of debt on your record

This can potentially affect your credit score in a negative way. In Malaysia, your credit score is typically determined based on your debt repayment pattern, outstanding loan amount, and credit application pattern, which all adds up to tell how likely you are to default on debts.

As such, having a poor credit score means your application could experience setbacks, causing you to get less than ideal interest rates or have your application rejected entirely.

3. Underestimating the total costs that come with purchasing a home

Many homebuyers, especially first-time homeowners, typically fail to factor in all the expenses associated with buying a property. So, make sure you do your research and calculations!

There are several fees and costs you have to keep in mind to pay. They include stamp duty, solicitor fees, moving costs, building insurance, and maintenance costs.

Not only can your purchase be jeopardised, but you could get into unwanted debt if you have insufficient funds to cover these expenses, and end up borrowing money to pay for them. 

4. Having misleading information on your loan application

Avoid bending the truth in your application when you apply, even if you think it will give yourself a better chance at securing a loan. This will only end up jeopardising your application. Don't lie about having a larger deposit than you do, how much you earn, your employment status, and more.

Keep in mind that financial and other requirements from mortgage lenders are there to make sure you can afford payments for a mortgage. By leaving out important financial information, you could end up with a mortgage you can't afford. Not to mention, your application may get declined or, even worse, you could be prosecuted for fraud.

5. Buying a home for the wrong reasons at the wrong time

Image via @bestnj (Canva)

Homeownership is a big step for anyone to take, so it's important to make informed decisions before you purchase your home.

It might be tempting to make real estate purchases at a stage where most of your peers and friends are buying, or even when the market is hot, but it's vital to take into account whether it's the right commitment for you at the right time.

Some factors you can take a look at to gauge if buying a home makes sense for you include your budget, lifestyle, and plans for the future.

6. Starting the home loan process too late

While most people tend to start the home buying process by searching for houses, it can be a good idea to start with getting your financing sorted before narrowing down your dream home.

That way, lenders can help you assess your needs, potentially allowing you to fast-track your approval process, instead of stalling with an application that includes requirements you do not meet.

But, of course, looking for a home first is perfectly fine. Just bear in mind that your dream home can likely look promising to someone else too, which means another buyer with sufficient funds or pre-approval on their mortgage can put in an offer that gets accepted before yours does.

7. Not comparing loan options you have

When it comes to home loans, your first thought may be to go with your usual bank. However, it may be worth your time and finances to check out what other options you have available.

This is because loans come in different types with varying terms and down payment requirements. Hence, understanding all of the mortgage options you qualify for can help you make the right financial decisions, both long-term and short-term, as well as secure the best deal.

We hope these tips serve you well!

If you're looking for your first home and need to secure a mortgage for it, the Syarikat Jaminan Kredit Perumahan Berhad (SJKP) scheme can help you get financing — even for those not earning a fixed income.

Established by the government in 2007, SJKP guarantees housing financing facilities provided by participating Financial Institutions (FIs) to farmers, fishermen, taxi drivers, and other people with income that vary each month.

Securing a loan prior to buying a house is difficult as it is, but even more so when you can't provide financial proof, which is why the SJKP scheme was set up in the first place.

The goal is to help Malaysians (with jobs that don't feature a fixed income) own their dream house.

SJKP had recently obtained additional guaranteed allocation to manage the housing guarantee scheme amounting to RM5 billion via Belanjawan 2023

This housing scheme is aimed to assist first time house-buyers including non-fixed and fixed income earners such as gig and freelance workers, e-hailing drivers, independent business owners, small traders, and entrepreneurs.

The SJKP housing guarantee scheme features:

Type of Facility
- Term Loan / Term Financing

Financing Limit
- Up to RM500,000

Financing Tenure
- Up to 35 years or up to the tenure of the loan financing, whichever is earlier (two generation financing allowed)

Guarantee Coverage
More than 100% guarantee coverage on financing amount obtained from participating Financial Institutions (FIs), including principal amount and the following: 

a. Mortgage Reducing Term Assurance (MRTA)/ Mortgage Reducing Term Takaful (MRTT)
b. Long Term Home Owners Policy (LTHO)/ Fire Insurance/ Takaful
c. Legal fees
d. Valuation fees

Guarantee Fee
- 0.25% p.a. for up to RM300,000
- 0.5% p.a. for RM301,000 to RM500,000
- Guarantee fee to be paid by participating FIs

Active Participating Financial Institutions
1. Agrobank
2. Bank Muamalat
3. Bank Rakyat
4. Bank Simpanan Nasional (BSN)
5. Hong Leong Bank
6. Maybank
7. MBSB Bank
8. RHB Bank

You'll also have to meet these criteria to be eligible for the scheme:

1. Malaysian citizens aged 18 years and above

2. Purchase of first new residential house, existing house (sub-sale, or auctioned house which are under the low/medium/affordable category, and to be owner occupied)

3. The total repayment of all applicant loans or financing does not exceed 65% of gross monthly income

4. Satisfactory credit history with no overdue records under Central Credit Reference Information System (CCRIS) for more than two months within a period of 12 months, as well as no other negative credit records within 24 months

Ultimately, the government scheme is designed to assist first-time homebuyers with or without a fixed income

The SJKP scheme helps Malaysians with their mortgage application process, from obtaining financing of up to RM500,000 (100% guaranteed by SJKP) to applying under joint applications, including two-generation applications which are made up of parent and child, husband and wife, as well as sibling and sibling.

For more information, visit SJKP's website

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