Foreigner's Guide to Securing a Mortgage in Malaysia
This article summarizes a discussion with Vincent, a seasoned mortgage specialist, regarding common questions and concerns foreigners have when seeking property loans in Malaysia. We'll explore bank perspectives, the role of MM2H visas, credit score considerations, required documentation, and practical advice for successful loan applications.
Introduction
Vincent from Ideal Mortgage Specialty (IMS), a company with 16 years of experience, joins us to share his expertise. IMS collaborates with 10 different banks, leveraging the unique strengths of each to match clients with the most suitable lender. Their in-depth knowledge of each bank's preferred customer profiles ensures optimal loan solutions.
Common Concerns of Foreigners Seeking Mortgages
What Banks Consider When Assessing Foreign Applicants
The primary focus for banks is the applicant's source of income. As long as there is a verifiable income stream, banks are generally interested in providing loans. This includes employed individuals, business owners, and those with rental income.
Types of Income and Their Impact
-
Salaried Employees: Banks favor applicants with a stable, fixed income from employment. Providing proof of income and relevant documentation increases the likelihood of loan approval.
-
Business Owners: While banks also approve loans for business owners, they require additional documentation, particularly income tax returns (Form B/BE), to verify income.
-
Rental Income: Some banks accept rental income as a valid source if the applicant can provide proof of property ownership and valid rental agreements, along with documented income streams.
Country Sensitivity
Some banks may be hesitant to lend to individuals from countries with unstable political or economic situations, such as those in conflict zones.
Credit History Considerations
A Malaysian credit history (CTOS/CCRIS) isn't essential for foreign applicants. While it can be an added advantage, banks primarily focus on the applicant's credit history in their home country. Applicants can obtain credit reports from their national banks or online.
Required Documentation and Loan Margin
-
For applicants not employed or operating a business in Malaysia, providing income documents from their home country is crucial.
-
If income is derived from overseas, banks perceive a higher risk, potentially leading to a lower loan margin (50-60%).
-
Applicants working or conducting business in Malaysia generally have a smoother process as banks can easily verify their income, potentially resulting in a higher loan margin (70-80%).
-
Banks assess the applicant's connection to Malaysia – their employment status, reasons for residing in the country etc. to determine the loan percentage.
The Influence of Visa Types
-
Work Permits: Typically do not negatively impact the loan amount.
-
Malaysia My Second Home (MM2H) Visa: While not a guaranteed advantage, becoming a high-net-worth client with the bank (e.g., through fixed deposits) can increase the chances of a higher loan amount. Banks require these high-net-worth customers to deposit MM2H fixed deposits into their banks in order to secure better deals.
-
Student Visas: Generally not accepted by banks for loan applications.
Bank Policies and Loan Conditions
Factors Increasing Approval Probability
Demonstrating a high personal net worth held in Malaysia or becoming a premier client at a bank can significantly improve approval chances. Opening an account and depositing a fixed amount (ranging from RM200,000 to RM300,000 depending on the bank) can qualify individuals as high-net-worth clients.
Tailored Loan Packages
Foreigners typically receive the same loan packages as local residents, demonstrating Malaysia's welcoming approach. However, purchasing price limitations still apply.
Property Type and Location
Banks evaluate properties based on the "5C" standard, one of which is collateral.
-
Developer Background: Banks scrutinize the developer's track record, avoiding those with poor construction history.
-
Location: Banks avoid locations with low demand, fearing difficulty in reselling the property in case of loan default and foreclosure.
-
Property Type: Banks favor residential properties (condominiums, service apartments). Commercial properties (shop lots, offices) have purchasing restrictions for foreigners unless a Malaysian company is established.
- Foreigners can set up Malaysian limited companies to bypass the restrictions on foreigners purchasing commercial properties. The loan still falls under the individual's responsibility but the company is the listed buyer of the property.
Common Rejection Reasons and Solutions
Incomplete or Unverifiable Documentation
Incomplete or unverifiable income documentation is a frequent issue. A letter from the HR department detailing the applicant's monthly income can often resolve this.
Under-Reported Income
Business owners may face challenges if their declared income for tax purposes is too low.
Insufficient Net Worth
Demonstrating sufficient personal net worth is crucial. Banks feel more secure lending if applicants can prove they have substantial assets to cover the loan amount.
Co-Applicant and Guarantees
Banks generally accept guarantors who have a direct relationship with the applicant (parents, spouse, siblings).
Loan Tenure and Age Limits
-
Some banks offer tenures up to 35 years, with a maximum age of 70.
-
Other banks may have shorter tenures or lower age limits (e.g., up to 65 years).
-
This means choosing the right bank is important.
Loan Application Timing
Applicants can apply for a loan before or after signing the Sales and Purchase Agreement (SPA).
Refinancing Limitations
Refinancing a property purchased with cash is generally not permitted for foreigners in Malaysia. Consider securing a loan initially, even if you have the cash, for potential future flexibility.
Flexi Loan Options
Consider a semi-flexi loan or flexi loan. This arrangement allows you to deposit excess cash into the loan account, reducing the interest charged. You can then withdraw the money when needed, offering flexibility and control.
Insurance Requirements
Banks encourage applicants to purchase mortgage insurance (reducing term assurance, MRTA), which covers the outstanding loan in case of unforeseen circumstances. It provides financial security and peace of mind.
Final Advice
Before committing to a purchase, inquire with banks or mortgage specialists to understand your loan eligibility and potential loan amount. Consider leveraging bank financing strategically to maximize your investment potential.