Picture taken from Grand Walini official website
Buying a house is never easy, with all the considerations of the size, location, and of course the price. Moreover, once you finally find “the one”, you might have to apply for a housing loan if you do not have enough cash ready in your pocket, and it’s not a simple case either.
From what I learned during my placement in mortgage division, and also during my personal home loan application process, the bank usually decides to whether or not approve the application based on the applicant’s “5 Cs”. Check out the details below and find out how they would relate to you.
Character refers to whether or not the applicant would be responsible to meet his/her obligation of repaying the money they borrowed from the bank. To see if it would be safe to lend some (or big) money to you, they would check your credit history, based on SID checking. They would see if you pay your other loans on time or not. The legend is divided into 5 categories as follow:
1 = Billings paid on time or before due
2 = Billings paid 1-90 days after due
3 = Billings paid 91 – 120 days after due
4 = Billings paid 121 – 180 days after due
5 = Billings paid above 180 days after due (or yet to be paid)
The credit card statement usually looks like this:
Referring to the statement above, if you paid this billing on 8 December 2016 or in prior, then your status would be considered as collect 1. If you paid on 9 December 2016, or 17 February 2017, it would cause you a collect 2 status.
The bank would prefer the applicant whose collectability status of 1 in all his/her credit legend, which includes credit card, auto loan (for car/motorcycle), business loan, and personal loan. Some banks should be okay when they found an applicant having a history of status 2 in the past if it was already 1 year ago or longer, especially if there is only one case of such and the rest of the legend is clear. I myself forgot to pay one of my credit card charges that caused me having a collect 2 status on 1 particular month in my credit history, and the bank that I applied loan to did asked me to give them some additional documents of the billings and the receipt of such delayed payment as a covenant, but that’s it.
On the contrary, if you were found to be having the collectability status above 2, especially if it happens a lot, and some has not been solved until now, you shouldn’t be surprised if the lender rejected your application. I mean, who would be naive enough to lend some money to a person who is proven to have a habit of being careless in repaying the loan(s)? Not a bank, I suppose.
Capital refers to the asset that you own; for example cash, car, other property, or investment; because the bank would like to know if you would have personal valuables before asking them to commit any funding. Logically, if your saving balance is close to zero, and you possess no vehicle neither other property when you apply for the loan, then what are you going to use to pay for your down payment and other incurred fee?
The credit amount that would be approved is below the actual value of the collateral, and we call it as LTV (Loan to Value). Based on Bank Indonesia Regulation number 18/16/PBI/2016 that was just issued on August 2016, the allowed ceiling of a customer’s housing loan is 85%* from the house price. It means that if you bought a house worth of IDR 500million, the bank could lend you money, which you would pay back using installments, up to IDR 425million.
*for the first house. LTV for the second house is 80%, and 75% for the third house.
Remember, the LTV is not always used against the price tag that the seller or the property agent gives you, because the bank will decide the actual value based on the appraisal by an appointed third party. The appraisal team would come to the property location and conduct a survey to gather detailed information that includes:
Once the data is collected, the team would send a report to the bank that contains the findings and, most importantly, the valuation of the property. Based on the report, the bank would decide whether or not the application would be carried to the next process, or not.
For example, I found a case where an applicant would buy a house at the price of IDR 1billion. Unfortunately, the appraisal result came out reporting that the house is located inside an alley that only fits for 1 car, and the building condition is also aged; making the valuation dropped to IDR 750 million. Why is this an issue? Because she applied for loan amount of IDR 700 million (which is actually is only 70% from her agent’s offered price), but the collateral condition caused the eligible loan ceiling falling to IDR 600 million (the allowed maximum LTV was 80% back in 2012), which means that she had to cover the IDR 100 million spread by herself.
Thus, when you are looking for the perfect house, you should also pay attention to whether the property is bankable or not, and if the bank would value the property as high as your agent does.
However, the case above is only applied for secondary properties. For primary properties, which are the houses or apartments marketed by the developer, the partnering banks would already have the agreements with the developers, that the valuation of the property to be used in the application process would be the one stated on the price list. But still, you might want to sell the house or apartment someday, and when the day comes, you would want your asset to be bankable, otherwise you would have to wait for a customer who has enough money to pay you in cash.
Those were the 3 out of the 5 Cs in Credit Analysis; hopefully you have found it helpful so far. Check out my next post for the other 2 Cs that you would want to pay attention to before you apply for a housing loan.