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First Impression Counts

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Improving your financial record to buy more properties

Weak economic conditions, higher interest rates and the global credit crisis have forced banks to be stricter about money lending and less generous with their lending rates.

Gary Chua, CEO of Smart Financing, said at PRISM 2016 that before you apply for a home loan, there are steps you can take to improve your financial record to buy more properties and encourage lenders to look more favourably on your application.

“Know yourself first. If you don’t know yourself, how can you borrow?” says Chua. “How you make the bank feel comfortable with you is your ability to pay. If the bank does not feel secured with you, they will not lend to you”, he added.

A good credit rating can’t be achieved overnight, so if you are considering to buy a house in the next few years, you should do what you can to score well right away. The golden rule of credit is that you should start small to prove that you are responsible so that your bank will look favourably on your home loan application when the time comes. While it may seem financially responsible not to get into debt, the banks have no other way of assessing what you will do with credit. Therefore store credit, cell phone accounts and bank loans for other assets like cars, are a good way to start. However be wary that each time your credit record is accessed; it affects your overall credit score at the bank. Hence don’t allow everyone and anyone to access your credit record.

Many people switch credit cards frequently but fail to cancel old credit cards that they no longer use. These lines of credit will still appear on your record, making lenders wary about the potential size of your total debt. Some may even fear that you will “max out” these cards and then struggle to meet repayments.

If you do not need the full credit limit given on a card, ask your lender to reduce it. The same applies to retail credit. This will help you to build a good track record as banks will want to see that you can manage credit sensibly. So if you are a first-time buyer consider taking out a credit card six months before submitting your loan application, make sure that you pay off the balance in full each month and on time, to avoid interest payments. Also, make sure your income is deposited monthly into a bank account as the banks will need proof of income via your bank statements.

Another speaker, Chris Tan, Founder of Chur Associates had this to share, “While building a relationship with the bank was important, we also need to build relations with our lawyers as they are the ones who are going to help you in signing a deal. In other words, they are the ones who are going to protect you.”

The other important person who is going to protect you is the valuer. If you want to get a good price for selling a property, you need to first build a strong relation with your valuer, so you will have a better chance of getting a higher value. Thus relationship building with relevant parties is very important as well.

Cherie Chong, Group Manager of De Bancco Group stated that most of the investors who came to her were having problems with their debt service ratio (DSR) that were not within the guidelines. As a financial adviser, Chong will advise her clients that if they still want to keep buying properties, then it will be better for them to show their net worth.

There is a guideline on RM1Million net worth and above. For example, the cash in your fixed deposit and in your savings account will probably amount to 60% or 70% liquid asset while the other 30% or 40% will come from the property value. Added up in total and the sum will be over RM1Million which you can henceforth show the bank that you have such a net asset, so that they might be able to offer you a high DSR, maybe up to 120%.

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