Your Income

As a bank, the most important criteria in making a credit lending decision must be the repayment of the loan.

A bad credit decision is lending to a homebuyer who simply could not afford to repay back the loan. A non-performing loan is of no interest to a bank, although the bank may earn late payment charges and eventually have the option to auction the property, this is usually the “last way out” for the bank.

Simply put, the bank is not in the business to acquire, hold and sell properties, but to earn revenue through the financing of properties.

As a lender, the bank will determine if you can pay the loan by looking into your income. When analysing your income, the following are considered:

  1. How regular is the income generated? Banks structure the instalments for the homeloan based on monthly payments, therefore a monthly generated income is preferred.
  2. How stable is your income? Many people enjoy income based on commissions, while other have significant amount of overtime income. Banks in general look for fixed salaries i.e. a fixed amount earned by the buyer on a monthly basis, as the customer may not earn a commission / overtime in low sales or economic downturn. The banks will consider non-fixed salary / income but usually takes only a portion of the non-fixed salary / income. For example, depending on each bank, a commission income may only be taken at 50% or 70% value, an overtime income may be calculated at 50% only.
  3. How long will you earn your income? If your income is not strong (i.e. low or have high commitments), the bank may be interested in the stability of your employment and the possibility of being unemployed. A bank may be more comfortable if a customer has been gainfully employed for a long period of time, or employable graduates. Some banks has even taken into consideration your educational degree as indication of employability.
  4. How reliable is your income? You may, in reality, earn thousands of ringgit from your business. However, all the income you are getting MUST be recorded, and evidenced in reliable documents for a loan application. Remember, the person approving your loan will not see you face to face, and rely entirely on documents as evidence to your income. A lack of documentary evidence means lack of information to make the decision to approve. A salary slip may not be enough; it can be supported by EPF statements (showing the EPF contribution) and bank statements to show your income.

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