To increase the possibility of getting your loan approved, it is important to understand the major obstacle to it - Debt Service Ratio. Loan officers can be very strict when it comes to scrutinizing these factors. One of the first things your bank will look at it is your Debt Service Ratio (DSR).

Debt Service ratio help to recognize either you are in a healthy or unhealthy financial position.

How?

DSR is telling the bank “whether or not you can afford the loan you are applying for” with two main components:

DSR = Total Commitment/ Net Income

In terms of a home loan, this formula essentially helps the bank estimate how much you can afford to fork out for your monthly instalments.

So, what exactly defines a commitment? In the context of your DSR, it means all bank and non-bank debt. Bank debt includes your car loan, credit card bills, and personal loans. Non-bank debt on the other hand, consists of monthly repayments such as PTPTN.

As for income, that banks will look at your net income after the deduction of EPF, SOCSO and taxes.

TechRevo’sTip 

Lender and banks love to see if you are capable to repay your home loan monthly repayment, if it seems like you’ll have a tough time scraping by just to pay them back, it’s highly likely they’re not going to approve your loan.

Let’s make an example, say your net income is RM6,000 a month and your monthly commitment is RM 1,000. Your current DSR is 16.67%. You are trying to get a home loan that with RM1,500 monthly repayment.

Your DSR is going to be 41.6% ((RM1000+ RM1500= 2500)/Income). DSR that’s below 50% is consider Ok.

So, it's safe to say that you just might have trouble getting approved for your loan. Still confused? Here's a complete DSR calculation for you:

Different bank has their different standard of DSR. Therefore, your DSR is then compared against the bank’s maximum allowable DSR limit, and if your DSR doesn’t exceed the limit. You are considered potential borrowers to them.

So while some banks may accept a DSR of as high as 70%, others may only allow 50%.

Example 1: Standard Chartered Bank may base their calculations on Gross Income, while RHB and Maybank may base it on Net Income.

Example 2: CIMB and HSBC may recognize 100% of rental income, while Public Bank and OCBC may only recognize 80%.

Example 3: RHB recognizes only 45% of foreign-derived income, while Hong Leong considers 100% of it.

In Techrevo home loan calculator, we build up-to-date with the credit standard of each in our credit report. Whether you are a salary earning, business owner or even full commission we are able to calculate your home loan eligibility with 99% accuracy.

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Once you have an idea of how much you can borrow, you can proceed to search for the best loan offers with your desired bank