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Do you feel troubled by probing questions about your marital status, gaps in employment, salary and bonus structure, or the shareholding details of your business, when applying for a home finance? When it comes to availing a home finance, it is important to reveal accurate and true information to your bank as required, as, at the end of the day, it’s all in your best interest.
Approving a large number of home financing applications, without substantive documentation and due diligence, is bad news – and can expose both banks and customers to risk. Today’s stringent Central Bank regulations prevent any indiscretion from banks whereby banks are required to offer clear financing terms. As a result, banks now ask additional, but relevant, questions to potential home owners, seeking appropriate documentation when processing a financing application. Even customers with good credit history can expect extensive due diligence when applying for a finance, even though a positive credit history provides additional comfort to financial institutions resulting which clients may be able to procure better financing terms due to lower probability of default.
In this competitive arena of home financing, banks often align with financing brokers to bring in clients, apart from deploying their own network of relationship managers. If a client opts for a financing broker in order to apply, he or she should expect these personnel to undertake an assessment of his or her risk potential. Often, finance professionals have an arm’s length perspective and are better able to assess a client’s financial health and ability to pay.
The role of banks’ relationship managers or home finance advisors, for example, is an important one, as they are required to appropriately assess the financial capacity of applicants, their employment status, income levels and risk-taking ability, and advise them correctly. The relationship managers or home finance advisors also go out of the way to explain and discuss market conditions to potential clients. They can present home finance options before clients, who have an appetite for upgrading their current property, or even go for a new investment. At Noor Bank, for instance, we have a number of distribution channels to source business, but the use of relationship managers and officers is the primary source of acquisition.
For your own safety, it’s paramount to enable banks to conduct their due diligence. One of the first criteria banks look into is your financial health - sections dealing with income and liabilities are the most crucial. Evaluators require proof of your monthly income, be it a salary certificate, bank statements or audited financials for the self-employed. Applicants would also need to disclose all their liabilities, which could be a personal finance, credit card or auto finance.
According to regulatory requirements, clients, under retail financing, can have up to only 50 per cent of their monthly income as liabilities. This means, if an individual’s monthly income is Dh50,000, their monthly payments cannot exceed Dh25,000, across all products.
Potential clients should also be honest about their real living expenses. It is important for banks to have information about your dependents and co-applicants, to format a full risk profile. Of utmost importance is the ability to provide proper documentation. In case an applicant is unable to explain his source of income satisfactorily or assure the bank about his ability to make payments through documentary evidence, he could potentially face rejections.
Banks follow rigorous authentication processes to ensure the safety of their funds. An application goes through a series of checks during the underwriting stage, so make sure to provide documentary evidence, like a salary certificate, duly signed by the authorised signatory. Remember, if banks fail to correctly assess your needs and ability, it can create a situation, exposing all parties to risk.
Finally, pay attention to the quality of property you are buying. If a property is not listed with the bank, a potential client may be rejected.
Regulators now play an important role in curtailing risk, both for banks and customers. For instance, the crack-down on off-plan properties, a sector that was instrumental in generating huge losses to banking and real estate sectors in 2008, has worked well. Buying off-plan property is now less risky, with developers obliged to adhere to stringent regulations with guarantees to escrows and construction linked payment plans. Clients are also required to contribute 50 per cent towards the purchase price before any finance is disbursed by the banks.
In line with regulatory requirements, banks also check whether customers can afford payments if profit rates increase in the future. This is done via stress testing applications during the underwriting stage. Ensure to keep your payment track record clean and never miss a payment. In case a payment is missed, try and pay it as early as possible. But most important of all, always provide the correct information to your bank to ensure that your finance request is not jeopardised later.
Source: Property Weekly