Sean's second step for every buyer is to find out how much they can borrow, yet many people avoid checking. In the second episode of his mortgage series, he asks Rena Choong, FAR Capital's head of mortgage, how banks work it out.
How do banks decide how much housing loan you can get, and how can you work it out yourself before you start looking?
“You should at least go and calculate your loan eligibility.”
Rena Choong, head of mortgage at FAR Capital, in conversation with Sean
Banks use your debt service ratio: all your loan repayments, existing and new, divided by your net income. Work out your own figure first, so you only look at properties you can finance and don't collect rejections.
Why
The DSR limit rises with income
Banks cap repayments at about 60% of net income for those earning under RM3,000 gross, 70% to 75% at RM3,000 to RM5,000, 75% to 80% above RM5,000, and up to 85% or 90% at some banks above RM10,000. Only debts in CCRIS count, such as housing, car, personal and PTPTN loans, credit cards and ASB financing; living costs and insurance don't.
A quick formula gives your limit
Take 80% of gross income as net, apply the bank's DSR limit, subtract existing repayments, then multiply by 250 for a 35-year loan. On RM6,000 gross, RM4,800 at 75% is RM3,600; less RM500 of debts leaves RM3,100, or about RM775,000. The multiplier falls with age, to about 230, 220 and 210, because loans end at around 70.
Your repayment record sets your rate
CCRIS shows the last 12 months, and each digit is the number of months in arrears; twos appearing more than once can sink an application. A weaker bank credit score still gets a loan, but at a higher rate, for example 3.4% or 3.5% instead of 3.3%.
Card balances count, not card limits
Banks count 5% of your outstanding credit card balance as a monthly commitment, and instalment plans count in full, so a big purchase just before applying can tip your DSR. Rena advises keeping card use below 30% of the limit.
What to do
- Get your free CCRIS report from Bank Negara (you register in person once), and consider a CTOS report, which also shows legal and trade records.
- Calculate your DSR and loan eligibility before visiting sales galleries, and shortlist only properties within it.
- Keep every repayment on time for at least the 12 months before you apply.
- If your CCRIS is empty, take a credit card, spend a little and pay it off in full for about six months to build a record.
- If you are self-employed or own over about 20% of a company, file and pay tax: banks will use your last two years of tax returns, not your payslip.
Editorial Note: Summarised from Sean Tan's full episode with Rena Choong. The answer is theirs, not Sean's; the quote is in their own words and the rest is our paraphrase. This is general information, not legal advice for your situation. Figures reflect the recording date, so check current rates and rules before acting on them.
HOW TO CALCULATE YOUR LOAN ELIGIBILITY (EP 2)
Sources & Verification Data
Summarised from Sean's full English captions for episode 2 of his mortgage series with Rena Choong, FAR Capital's head of mortgage (August 2022). The quoted answer is Rena's own words; everything else is paraphrased. DSR limits and rates are as stated in 2022 and differ between banks. Sean is a customer of FAR Capital, not its owner.
