(This article is Part 2 of the 'Mortgage Loan Application and The Documents You Need' series. Click here to read Part 1 [Regular Employment] and Part 3 [Non-Standard Documents]).
Applying for a mortgage loan may seem pretty simple, and actually, it can be! All you need are some standard documents for your application and you’re good to go. However, what if you don’t know what they are?
Everyone’s circumstances are different, so if you don’t have the documents required for a mortgage application, don’t panic just yet. You’ll still be able to apply for a loan – you just need to prepare a different set to make your case!
As a self-employed person, the documents you need are very similar to that of an employed person’s, but you might need just a little bit more to make sure the application process goes smoothly.
To put things into a better perspective, we’ll centre this topic around the focus of individual loans, and not company loans.
Here are five documents (and some extras) you need to prepare when it comes to applying for a mortgage loan if you’re self-employed.
1) Company registration documents
For a business owner to apply for a loan, company registration documents are one of the most basic documents you’ll need to prepare.
Any type of business, be it an enterprise or Sdn Bhd, requires official company registration documents to prove who the business owners are, whether there are any partners, and what the nature of the business is.
If the nature of business has changed throughout the years, like a transition from selling food and beverage to selling merchandise, be sure to update the changes in your business registration accordingly. It’ll help a lot with your loan application!
According to Suruhanjaya Syarikat Malaysia (SSM), you will need to register business changes within thirty (30) days from the date of changes. These changes include:
- Change of business address
- Change of business type
- Change of branch particulars
- Change of owner/partner information
2) Company bank statements
When you submit your company’s bank statements, these are the documents that the bank will go through to find out how much income is generated from your company.
As a rule of thumb, the higher the amount or turnover, the better it is. By all means, as a business owner, try to avoid using cash transactions so that every transaction can be properly recorded as income.
But, we know not every business can practice that! If you do need to bank-in your business transactions in the form of cash every day, you can continue to do so, but it’s highly advisable to put as much into your deposit as possible.
If you don’t have much deposited into the bank account, don’t worry yet if you think that means you can’t obtain a mortgage loan. Here’s where the next part comes in to help: Income tax!
3) Income tax
Quite possibly one of the strongest documents to submit as part of your mortgage loan application, income tax documents will help prove the business owner’s actual income for the past year.
Be warned though: If you’ve under-declared your income, you might find it hard to be approved for a loan. Not only that, but you’ll also receive a penalty too, and risk ending up behind bars!
4) Company website
To build better credibility for your business when applying for a mortgage loan, one thing you can do is to present your company’s website, Facebook page, or company profile together with your application.
This will help the banks understand your business better, especially if you’re applying for a big loan!
Banks don’t always know or are able to see what your actual business is, so this additional information will give them a clearer picture of your business, and will assist in the decision-making process of your loan.
5) Copy of your I.C.
Of course, every formal application will most definitely require a copy of your I.C.
Make sure your I.C. particulars have been updated, and include clear images of the front and back. For added measures, you can prepare more than one copy (just to be on the safe side!).
6) Extra documents
If you've got all your documents complete and compiled, and you’re pretty sure your loan application will be successful, it won’t hurt to be even more prepared and bring along some extra documents.
It may seem a bit tedious to prepare them as the banks might not even request for it, but it’ll all be worth it if they do. That saves you time, effort, and you don’t have to make another trip back to the bank.
6a) Rental income/agreement
If you have properties that are being rented out, keeping a record of your rental income will help your loan application.
This is in terms of the Debt Service Ratio (DSR) and a credit perspective. For example, Person A having a few loans and not renting out, vs. Person B with rental income for their properties.
When it comes to rental income, try your best to have all these documents in place before your mortgage loan application:
The stamped rental agreement, also known as a tenancy agreement, is the main document that contains details of your rental income such as rental rates, property details, and so on.
It must be stamped to be valid, and if there are any subsequent extensions, it’s advisable to be stamped too.
If it’s not stamped, it can still be accepted, provided that the bank statements show that the rental is still being collected/credited into your bank account.
A six-month bank statement is usually required by most banks to cross-check the rental. But wait, what happens if you don’t have that statement, or if you've just rented out the property to a new tenant?
Since there’s no proof of the six months of rental credit, you can use the credit of the rental deposit and utility deposit instead, along with the newly stamped rental agreement!
Again, avoid collecting your rental income in cash as it’s harder to track and less transparent than bank statements.
Any transaction should be made through your bank account, and it’ll always serve as the black-and-white proof should anything go wrong.
6b) Utility bills
Like we mentioned earlier, certain banks will request for the latest month’s utility bill (TNB/Syabas) to prove your rented property is indeed occupied and not just an empty unit.
6c) Commission records
This would apply to those who are self-employed and earning a commission-based income, such as salespeople, real estate agents, and real estate brokers.
Similar to the variable income we touched on in Part 1 of this series, those earning commissions will need to make sure that their voucher or payment slips are tallied with the credited amount in their bank account.
For instance, if your payment slip states the commission earned in March is RM7,000, the amount that’s credited into your bank account should be the same, and not a single cent less or more.
It’s advisable to keep your commission records for at least six months before applying. If possible, apply for your mortgage loan only when your income for those six months have been the most consistent, or when you receive the most commission. For example:
Based on the example above, it’d be best to use commission slips from February to July as the monthly commission is relatively steady. It doesn't have much fluctuation between the lowest amount (RM6,300) and the highest amount (RM7,500).
Although the highest-earning commission month was September, the amount earned around those six months had a high fluctuation, which might not be entirely favourable by the bank.
Remember: When in doubt, always clarify with your banker before you prepare and submit your documents!
The line between a self-employed person and a freelancer can be blurred at times, which may be confusing when it comes to preparing documents for your loan. Worry not because we’re here to help.
Expert insights contributed by Travis Tiu. You can reach out to him for your financial needs at +60 12-686 1202 or firstname.lastname@example.org
We are an established loan consultancy, assisting our clients in their best interest to secure various types of bank financing for both individuals and/or companies, be it property financing or business/company application. We have been in this industry for more than 10 years, and have been helping many of our clients solve their issues with bank financing. Feel free to contact us if you have any query regarding loan matters.