SBET4522 Property and Project Finance

Chapter 7
Financing Residential
Properties
Prepared by:
DR WEE SIAW CHUI
Department of Real Estate
Faculty of Built Environment and Surveying
Universiti Teknologi Malaysia
Contents
➢Ways to fund your residential property

➢General loan application process

➢Underwriting
Ways To Fund Your
Residential Property
1. Skim Rumah Pertamaku (MyFirst
Home Scheme)

• Skim Rumah Pertamaku (SRP) is a Government initiative

aimed at assisting first time house buyers to own a
home. Loan/financing application will be processed and
approved by the participating banks based on the
Scheme’s criteria and respective bank’s credit
underwriting standards.

• Financing up to 110% (Financing >100% to 110% is only

for applicants with household income ≤RM5,000 +
purchase property ≤RM300,000)
2. MyDeposit Scheme

• MyDeposit scheme aims to help the middle-income group in purchasing

their first homes, and it also provides incentives for developers of
affordable homes.
• It is a one-off contribution to down payments of up to 10% of the property
price
3. Housing Credit Guarantee Scheme (HCGS)

• The Government of Malaysia recognized the difficulties faced by those

without fixed income, such as farmers and petty traders to obtain
financing facilities to purchase their dream home.

• In order to overcome such difficulties, the Government has set up Syarikat

Jaminan Kredit Perumahan Berhad (SJKP) as a wholly-owned
company of the Minister of Finance, Incorporated on
6 December 2007 to guarantee the financing facilities
provided by participating financial institutions.
HCGS - Overview of the process
4. Lembaga Pembiayaan
Perumahan Sektor Awam
(LPPSA) Loan

• Lembaga Pembiayaan Perumahan Sektor

Awam is a statutory body tasked with
providing housing loans for civil servants
and those in the public sector.
• A LPPSA loan allows eligible government
employees to apply for a full loan and enjoy
longer tenures compared with conventional
housing loans.
https://www.lppsa.gov.my/v3/my
Eligible Applicant(s):

▪ Be a Malaysian citizen
▪ Be a government employee with a permanent position
▪ Already receive an employment confirmation letter
▪ Have at least 1 year of service
▪ Submit the application one year before retirement/end of service
▪ Have a lawyer as a witness for the Sales and Purchase Agreement (SPA)
▪ Include a marriage certificate for
▪ Joint home financing with the spouse, or
▪ Loans that are registered in joint (2) names under SPA
▪ Not be:
▪ Bankrupt
▪ Burdened with too much debt
▪ Earning an insufficient amount of salary
▪ Undergoing any discipline procedures
Types of Loans by LPPSA:

1. Buying a complete/ready-made house or residential lot

2. Buying a home/residential lot that is currently under construction
3. Buying a house on your own plot of land
4. Settling a housing loan debt with a bank/financial institution
5. Purchasing a parcel of land to build a house
6. Renovating/modifying a house or residential lot
7. Building a house on land purchased under LPPSA
5. Employees Provident Fund (EPF)
Account 2

• The Employees Provident Fund has long allowed

the withdrawal from Account 2 to finance the
purchase of a property.

• Account 2 funds can be withdrawn to buy a

home or build a home
https://www.kwsp.gov.my/member/withdrawals
Buy Home
Eligible Applicant(s):
▪ Malaysians & Non-Malaysians
▪ Below 55 years of age
▪ At least RM500 in Account 2
▪ Purchasing residential home
▪ Approved loan from recognised lenders
OR self-financed
▪ Never made a housing withdrawal/have
made housing withdrawal before but
have sold/disposed of the property
▪ Sales and Purchase Agreement is not
more than 3 years from the date of
application)
Build Home
Eligible Applicant(s):
▪ Malaysians & Non-Malaysians
▪ Below 55 years of age
▪ At least RM500 in Account 2
▪ Approved loan from recognised lenders
OR self-financed
▪ Never made a housing withdrawal/have
made housing withdrawal before but
have sold/disposed of the property
▪ Construction Agreement is dated less
than three (3) years from the date of
withdrawal application
What You Can Withdraw
Taking The Housing Loan

• Housing loan is a loan taken out from a bank or financial institution to

help you purchase your house.

• Types of housing loan:

1. Term Loan
2. Semi-Flexi Loan
3. Full-Flexi Loan
General Loan Application Process

Target your dream house

Prepare the required documents for

loan application

Submit your loan application and

required documents to your targeted
banks

Carry out underwriting process

Preparing The Required Documents For
Housing Loan
▪ Identification Card – NRIC
▪ Property Booking Form/Receipt
▪ Sales & Purchase Agreement
▪ Employment confirmation letter
▪ Latest 3 months pay slip (for Basic Salary)/Latest 6 months pay slip (for Basic +
Commission Earner)
▪ Latest 3 months personal bank statement (for Basic Salary) / Latest 6 months personal
bank statements (for Basic + Commission Earner)
▪ Latest EA form
▪ Latest KWSP statement
▪ Income Tax – Latest Form B/BE with payment receipt acknowledgement
▪ Deposit statement eg. Fixed Deposit, Bonds (if any)
Underwriting

• The process of evaluating a borrower’s loan request in terms of

potential profitability and risk is referred to as underwriting
• This function is usually performed by a loan officer at a financial
institution
• The loan officer performed the analysis based on information
contained in:
i. The loan application submitted by the borrower
ii. An appraisal of the property
The Fundamentals Considered By Lender
• Two fundamental relationships that must be assessed by any lender
when considering the risk of making a mortgage loan are:

Total monthly commitments +

i. Debt Service Ratio (DSR) = mortgage loan X 100%

Net income
(after tax, EPF and SOCSO etc.)

Amount owed on the loan

ii. Loan-to-Value (LTV) ratio = X 100%
Appraised value of asset
1. Borrower Income

• To gather the necessary data regarding income, the borrower is

requested to allow the lender to:

✓Verify place of employment

✓Verify salary
✓Inquire as to whether employment is likely to continue into the
future
• Other possible income sources include these:

✓Part-time employment
✓Rentals
✓Commissions
✓Self-employment
✓Bonuses
✓Dividends or interest
• Two tests must be met before any of these sources will be included in
establishing borrower income in the underwriting process:
1. First, the underwriter must judge that the income is likely to continue.
This usually means that a source of income must have already
occurred continuously for a sufficient time for the underwriter to
judge whether that income will continue.
2. Second, the income must be verifiable, usually by reviewing the
borrower's income tax filed for the past year(s).

• When income is variable in nature, such as the earnings from commission

sales positions, rentals, or self-employment, a borrower's income will
generally be averaged.
2. Verification of Borrower Assets

• The loan rating is improved if the applicant has demonstrated a

consistent ability to save as evidenced by savings accounts or
investments in other property, ownership of life insurance (cash
value), purchase of securities
3. Assessment of Credit History

• Credit report - CCRIS (Central Credit Reference Information System) report ,

from a central credit bureau will give a history on a borrower's payment
habits
4. Other Obligations

• Other obligations include:

▪ Car loans
▪ Credit card accounts
▪ Other mortgage debts
• The underwriter will request that the borrower disclose all debts at
the time of application, and then verify these commitments by
obtaining a credit report with the approval of the borrower
• Another item on the credit report of importance to the underwriter
will be whether the borrower has ever filed for bankruptcy
5. Compensating Factors

• Liquid assets that could be used to make monthly mortgage payments

should the borrower's income be interrupted

• If the borrower is employed in a field in which his or her skills are in

high demand and the likelihood is that the borrower's income will
increase over time.
Thank you!