Being eligible for a loan is not the same as being ready for one

Getting a home loan should be straightforward now, thanks to new flexi policies offered by progressive collaborations between banks and property developers. Earn enough, show the numbers and the bank stamps the approval. But there is pushback from buyers and even developers, saying it is not as simple as it is made out to be.

As we step into 2026, just getting one’s mortgage approved in Malaysia is proving to be challenging. Many banks have tightened their lending criteria.  Property prices keep soaring, too, so it is no surprise that just getting approved is becoming increasingly tough. A survey from late 2025 revealed that a staggering 72% of developers are facing issues with buyers' financing. Particularly in the segment for homes priced between RM500,000 and RM700,000, nearly 38% of transactions failed because buyers were unable to secure the necessary loan approvals.

In an earlier article, Ong Chou Wen, who is now the NCT Alliance Bhd chief executive officer, brought up the fact that lenders’ hands are tied. “The bank’s lending policies, as well as their credit review, are governed by Bank Negara. CIMB, Maybank, it is the central bank’s regulations. They cannot defy that. They are very stringent because they do not want all the bad-performing loans.”

One of the reasons behind this trend is that securing a mortgage is not just about having a good income. It is also about demonstrating good financial habits and overall stability. For instance, the popular usage of credit cards to purchase items has made spending more convenient for many Malaysians, but unfortunately, it has also led to higher household debt. These small short-term repayments can accumulate, leading to bigger-than-expected monthly obligations. Banks are taking notice of these trends which can play a big role in determining if someone is really ready to take on a loan, as it affects their credit rating.

Being loan eligible is not the same as being loan ready. An applicant might tick all the boxes on paper but high credit card balances or household debts can indicate that finances might already be stretched beyond limits. Lenders are not just asking whether a loan can be repaid but whether repayments can be realistically sustained over the next 20 to 25 years.

Small debts, big impact

When it comes to getting a loan, salaries and debt service ratios (DSR) are just the tip of the iceberg. Lenders delve deeper, examining things like payment histories, spending habits and how well an applicant manages their finances. If they keep their debts in check and pay their bills on time, the borrowing process tends to go a lot smoother compared to those who, despite earning a decent income, show signs of financial stress.

Even a good salary can be overshadowed by existing financial commitments. Banks take a close look at how much of a monthly paycheck is already being used for things like existing loans on vehicles, credit card payments or personal loans. For instance, spreading the cost of that RM800 smartwatch over a year might not seem like a big deal but those little monthly payments can add up and impact the ability to repay other loans.

Spending habits are telling, too. If the applicant is constantly maxing out their credit cards, juggling several short-term loans or frequently missing even small payments, those are huge red flags warning lenders to reject. Banks are increasingly paying attention to these behavioural patterns just as much as they consider traditional metrics like DSR. In essence, how a buyer handles their money daily is just as important as their income level.

Job and income factors

When a buyer applies for a loan, their job stability is placed under the microscope. Lenders feel more assured when they see a steady income because it gives them confidence that borrowers will be able to make their repayments. If someone’s work history reveals frequent job changes, gaps in employment or reliance on unpredictable freelance income, it may not automatically disqualify them but it does raise some flags and get lenders suspicious of their circumstances. Clear records and a reliable income can significantly reassure banks that borrowers can meet their financial obligations adequately and sustainably.

In such cases, lenders take extra time to assess the stability of their income, particularly for self-employed individuals or those who are commission workers. It is difficult to demonstrate clear records and regular income patterns when it is so inconsistent. So if a bank advertises fast-track approvals, take it with a grain of salt if working a freelance job.

“A significant hurdle for lower-income households and gig workers is their limited access to property financing. Traditional lenders often hesitate due to their credit limitations and irregular income streams, making it harder for them to secure home loans. This lack of access does not just keep them out of the housing market but it also pushes more people into the rental market, driving up demand and consequently inflating rental rates,” said Avaland Bhd strategic planning director David Aw.

Financial readiness is another crucial aspect of the loan application process. Having savings signals to lenders that borrowers can manage unexpected expenses, such as medical emergencies or vehicle repairs. While loan eligibility primarily focuses on monthly income and commitments, the presence of savings reflects resilience and stability.

Timing is also often an underestimated factor in the application journey. Many prospective borrowers will tunnel vision on meeting eligibility requirements but fail to recognise the importance of their financial habits in the months leading up to the loan application. This, unfortunately, leads them to take on new debts, increase their credit card usage or commit to several more easily-approved buy-now-pay-later plans. This wipes out their repayment capacity at a critical moment. Even minor financial decisions during this period can significantly impact an application’s assessment.

Preparation typically begins well before submission. Buyers need to pay off outstanding balances, prove consistent repayment behaviour and avoid unnecessary financial commitments to bolster a financial profile. While these steps might seem obvious and reiterated one too many times, they do demonstrate discipline and stability which lenders like.

Ultimately, small debts often have a bigger impact than buyers realise. One instalment plan or a short-term loan may feel manageable but when combined with other commitments, they can quietly chip away at borrowing capacity. Lenders do not look at repayments in isolation because they focus on the full picture.

Affordability is another trap. Instead of staying comfy in the recommended 30% repayment window, many applicants tend to chase the maximum loan they qualify for. Approval limits are in place to offer guidance but stretching to the top can leave little room for surprises or lifestyle changes. So it can be said that loan readiness is built long before an application is even submitted. Regular repayments, controlled spending and a clear financial plan lay a foundation that lenders can see and trust. Meeting eligibility numbers is only part of the story. 

With borrowing tools more accessible and commitments easier to accumulate, the line between eligibility and readiness is getting less blurry. Those who understand the difference can approach the process with confidence, keeping repayments manageable and turning loan approval into long-term stability instead of a brief win.

Stay ahead of the crowd and enjoy fresh insights on real estate, property development and lifestyle trends when you subscribe to our newsletter and follow us on social media.