Most home loan rejections in Malaysia are not caused by bad credit. They are caused by a single ratio the applicant never calculated before walking into the bank: the Debt Service Ratio. Your salary could be RM 15,000/month, your CCRIS record spotless, your employment stable for a decade — and the bank will still decline your application if your DSR exceeds their threshold. The number that determines whether you get a home loan is not how much you earn. It is how much of what you earn is already committed elsewhere.
This guide covers exactly how DSR is calculated, what Malaysian banks count as debt (some items will surprise you), how income is assessed for salaried and self-employed applicants, and a table showing the maximum property price you can afford at each salary level. If you are planning to apply for a home loan — especially your second or third property — run these numbers first.
What Is DSR?
DSR stands for Debt Service Ratio. It measures what percentage of your net monthly income goes toward servicing all debt obligations.
DSR = (Total Monthly Debt Commitments / Net Monthly Income) x 100%
Example: If your net monthly income is RM 5,600 and your total monthly debt payments are RM 2,800, your DSR is 50%.
Most Malaysian banks set their DSR threshold at 60% to 70%. Some banks allow up to 80% for high-income borrowers (typically net income above RM 10,000/month). If your DSR exceeds the bank's threshold after including the proposed new loan, the application is rejected — regardless of your credit score or employment history.
BNM (Bank Negara Malaysia) does not mandate a specific DSR cap, but it requires all banks to conduct responsible lending assessments under the Guidelines on Responsible Financing. Each bank sets its own internal DSR ceiling based on these guidelines.
What Counts as "Debt" in DSR Calculation
This is where most borrowers get the calculation wrong. Banks do not just look at your home loan and car loan. They include everything that shows up as a financial commitment.
| Debt Item | How Banks Count It | Notes |
|---|---|---|
| Existing home loan(s) | Actual monthly instalment | From CCRIS record |
| Car loan / hire purchase | Actual monthly instalment | From CCRIS record |
| Personal loan | Actual monthly instalment | From CCRIS record |
| PTPTN | Actual monthly repayment | Even if currently in deferment, some banks still count it |
| Credit card | 5% of total credit limit | Not 5% of outstanding balance — 5% of the approved limit. If your limit is RM 20,000, banks add RM 1,000 to your monthly debt even if you pay in full every month. |
| ASB Financing (ASBF) | Actual monthly instalment | Commonly RM 300-500/month for a RM 200K ASBF |
| Hire purchase (motorcycle, equipment) | Actual monthly instalment | Any instalment showing on CCRIS |
| Overdraft facility | 5% of approved limit | Similar treatment to credit cards |
| Proposed new home loan | Estimated monthly instalment | The bank calculates this based on requested loan amount, tenure, and their stress-test rate |
What does NOT count as debt:
- Utility bills (TNB, water, internet)
- Insurance premiums (life, medical, motor)
- Subscription services
- Rental payments (if you are currently renting)
- SOCSO/EIS contributions
- EPF contributions (these are deducted from gross to get net income, but they are not "debt")
Key takeaway: Credit cards are the silent DSR killer. A card with RM 30,000 limit adds RM 1,500 to your monthly debt in the bank's eyes — even if you never carry a balance. Cancel unused cards before applying for a home loan.
How Banks Calculate Your Income
The denominator in the DSR formula — net monthly income — is not simply your take-home pay. Banks have specific methods depending on your employment type.
Salaried Employees (Private Sector)
Banks start with your gross monthly salary and deduct statutory contributions:
| Deduction | Rate | On RM 8,000 Gross |
|---|---|---|
| EPF (employee portion) | 11% | RM 880 |
| SOCSO (Employment Injury + Invalidity) | ~0.5% | RM 40 |
| EIS (Employment Insurance) | 0.2% | RM 16 |
| PCB (Monthly Tax Deduction) | Varies | ~RM 200 (estimated) |
| Net Income | RM 6,864 |
Some banks use gross income minus EPF only. Others deduct all four items. The more conservative the bank, the lower your calculated net income, and the lower the loan amount they will approve. Ask your banker which formula their bank uses — it can make a difference of RM 200-400/month in your computed income.
Documents required: Latest 3-6 months payslips, EA form, EPF statement, and bank statements showing salary credit.
Government Employees
Government servants get favourable treatment. Many banks accept gross salary without deducting EPF, because government employment is considered near-zero risk of retrenchment. Some banks allow DSR up to 80% for government employees. This is why civil servants can often qualify for larger loans than private-sector workers at the same salary.
Self-Employed / Business Owners
This is where it gets difficult. Banks need to verify income that does not come in a fixed monthly payslip.
Required documents:
- Latest 2 years of income tax returns (Form B / Form BE)
- 6-12 months of business bank statements
- SSM business registration
- Business financial statements (if available)
Income calculation: Banks take the average monthly income from tax returns and then apply a haircut of 20% to 30%. If your tax returns show RM 120,000 annual income (RM 10,000/month), the bank may use only RM 7,000-8,000 as your assessed income.
The haircut exists because self-employed income is variable. If your income has been growing year-over-year, some banks will use the average of the two years. If it has been declining, they may use the lower year.
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Commission-Based / Variable Income
For borrowers with base salary plus commission (common in sales, real estate, insurance), banks typically count the fixed base in full and 50%-70% of average commission over the last 6-12 months. Overtime pay is treated similarly — banks discount it because it is not guaranteed.
Rental Income
This is critical for property investors buying their second or third property. BNM's responsible financing guidelines allow banks to count 70% to 80% of verified rental income toward DSR calculations.
Requirements:
- Stamped tenancy agreement
- Proof of rental deposits (bank statements)
- Some banks require the tenancy agreement to have at least 6-12 months remaining
Example: If your rental income is RM 2,000/month, the bank counts RM 1,400-1,600 toward your income. This can significantly expand your borrowing capacity for subsequent properties.
Worked Example: Calculating Maximum Loan Eligibility
Let us work through a real scenario.
Borrower profile:
- Gross monthly salary: RM 8,000
- Net monthly income (after EPF 11%, SOCSO, EIS, PCB): RM 6,864
- Existing car loan: RM 800/month
- Existing home loan: RM 1,500/month
- Credit card limit: RM 10,000 (counted as RM 500/month)
- No other debts
- Bank's DSR threshold: 65%
Step 1: Calculate current debt load
Existing monthly debt = RM 800 + RM 1,500 + RM 500 = RM 2,800
Step 2: Calculate maximum total debt allowed
Maximum total debt = RM 6,864 x 65% = RM 4,462
Step 3: Calculate room for new loan payment
Available for new loan = RM 4,462 - RM 2,800 = RM 1,662/month
Step 4: Calculate maximum loan amount
At 4.75% interest rate over 35 years, a monthly payment of RM 1,662 supports a loan of approximately RM 310,000.
Step 5: Calculate maximum property price
At 90% margin of financing: RM 310,000 / 0.9 = RM 344,000.
That is the maximum property this borrower can purchase — assuming the bank uses a 65% DSR threshold. At a 70% DSR threshold, the numbers improve:
Maximum total debt at 70% = RM 6,864 x 70% = RM 4,805
Available for new loan = RM 4,805 - RM 2,800 = RM 2,005/month
Maximum loan = ~RM 374,000
Maximum property price (90% margin) = ~RM 416,000
The difference between a 65% and 70% DSR cap is roughly RM 72,000 in purchasing power for this borrower.
Maximum Property Price by Salary Level
Here is a reference table assuming: no existing debt, 90% margin of financing, 35-year tenure, 4.75% interest rate, and a 65% DSR threshold. Net income is calculated as gross minus 11% EPF, 0.5% SOCSO, 0.2% EIS, and estimated PCB.
| Gross Salary (RM) | Est. Net Income (RM) | Max Monthly Instalment at 65% DSR (RM) | Max Loan Amount (RM) | Max Property Price at 90% LTV (RM) |
|---|---|---|---|---|
| 4,000 | 3,400 | 2,210 | 413,000 | 459,000 |
| 6,000 | 5,130 | 3,335 | 623,000 | 692,000 |
| 8,000 | 6,864 | 4,462 | 833,000 | 926,000 |
| 10,000 | 8,500 | 5,525 | 1,032,000 | 1,147,000 |
| 15,000 | 12,400 | 8,060 | 1,505,000 | 1,672,000 |
With existing debt of RM 1,500/month (e.g., car loan + credit card):
| Gross Salary (RM) | Est. Net Income (RM) | Max New Instalment (RM) | Max Loan (RM) | Max Property at 90% LTV (RM) |
|---|---|---|---|---|
| 4,000 | 3,400 | 710 | 133,000 | 148,000 |
| 6,000 | 5,130 | 1,835 | 343,000 | 381,000 |
| 8,000 | 6,864 | 2,962 | 553,000 | 615,000 |
| 10,000 | 8,500 | 4,025 | 752,000 | 835,000 |
| 15,000 | 12,400 | 6,560 | 1,225,000 | 1,361,000 |
The impact of RM 1,500/month in existing debt is dramatic. For the RM 4,000 earner, it slashes purchasing power by RM 311,000. This is why paying off a car loan before applying for a home loan is one of the highest-ROI financial moves you can make.
Key takeaway: Every RM 1,000 of existing monthly debt reduces your home loan eligibility by approximately RM 187,000 (at 4.75%, 35 years). Eliminating debt before applying is more effective than earning more.
How to Improve Your DSR
If your DSR is too high to qualify for the loan you want, here are the concrete levers you can pull — ranked by impact:
1. Pay off your car loan early. A typical car instalment of RM 800-1,200/month directly reduces your debt load and can unlock RM 150,000-225,000 in additional home loan capacity.
2. Cancel or reduce credit card limits. Call your bank and request a limit reduction on cards you do not use. If you have three cards with RM 15,000 limit each, the bank sees RM 2,250/month in debt commitments (5% of RM 45,000). Reducing total limits to RM 10,000 cuts that to RM 500.
3. Settle your personal loan. Personal loans carry high interest rates and high monthly payments relative to the balance. Paying one off can free up significant DSR capacity.
4. Add a co-borrower (joint loan). Adding your spouse or a family member as a co-borrower combines both incomes in the DSR denominator. If you earn RM 6,000 net and your spouse earns RM 4,000 net, your combined net income is RM 10,000 — increasing your maximum debt capacity from RM 3,335 to RM 6,500 at 65% DSR.
5. Include verified rental income. If you already own a tenanted property, provide the stamped tenancy agreement. The bank will add 70-80% of the rental income to your assessed income.
6. Extend the loan tenure. A 35-year tenure produces lower monthly payments than a 30-year tenure for the same loan amount, which means the proposed instalment uses less of your DSR allocation. The trade-off: you pay more total interest. Use our Home Loan Calculator to compare.
7. Reduce the loan amount. This means either buying a cheaper property or increasing your down payment. If you can put 20% down instead of 10%, the loan amount drops, the proposed instalment drops, and your DSR improves.
DSR Across Different Banks
Not all banks are equal. Here is a general guide to how major Malaysian banks approach DSR:
| Bank Category | Typical DSR Cap | Notes |
|---|---|---|
| Maybank, CIMB, Public Bank | 60% – 65% | Conservative. Strict documentation. |
| RHB, Hong Leong, AmBank | 65% – 70% | Slightly more flexible. May accept higher DSR for strong profiles. |
| Alliance Bank, OCBC, Standard Chartered | 65% – 70% | May offer higher caps for professionals (doctors, lawyers, engineers). |
| Bank Rakyat, MBSB | Up to 75% | More flexible for government servants. Islamic financing focused. |
These are general ranges — individual cases vary based on your overall credit profile, employment stability, and the specific property. Always apply to at least 2-3 banks to compare approval terms. You can also check your CTOS credit score before applying to identify and resolve any issues in advance.
For a comparison of rates and terms across these banks, see our Best Home Loan Comparison.
Special Considerations for 2nd and 3rd Property Buyers
If you are buying your second or third property as an investment, the DSR calculation gets more nuanced:
Existing home loan(s) count as debt. Your current mortgage payment is included in the numerator. This is the primary reason many investors hit a DSR ceiling — their first property's instalment consumes 25-35% of their income, leaving limited room for a second loan.
Rental income offsets the damage. If your first property is rented out at RM 2,000/month, the bank adds approximately RM 1,400-1,600 to your income. This partially neutralises the RM 1,500-2,000 mortgage payment on that property in your DSR calculation.
Third property LTV drops to 70%. The 30% down payment required for a third property means a smaller loan amount, which paradoxically helps your DSR — but demands significantly more upfront capital.
Strategy for portfolio builders: Before applying for your second property loan, ensure your first property's tenancy agreement is stamped and current. The rental income inclusion can be the difference between approval and rejection.
Pre-Approval: Check Before You Shop
Do not house-hunt first and then discover your DSR is too tight. Get a pre-approval (or at least an indicative approval) from your bank before you sign any booking form or SPA.
What pre-approval tells you:
- Maximum loan amount the bank will extend
- Interest rate offered based on your profile
- Tenure available
- Any conditions (e.g., settle car loan first, provide additional documentation)
Most banks offer free pre-approval assessments that take 3-5 working days. This costs nothing and prevents the nightmare scenario of signing an SPA, paying the booking deposit, and then having your loan rejected — forcing you to forfeit the deposit or scramble for alternative financing.
Use our Cashflow Calculator to model the full monthly cost of ownership — mortgage, maintenance fees, insurance, and taxes — before you commit to a property. DSR approval is necessary but not sufficient. You need to know whether the property generates positive cashflow or at least breaks even.
Sources & Further Reading
- BNM — Responsible Lending Guidelines
- BNM — Measures to Promote Responsible Financing
- BNM — LTV Guidelines (70% 3rd property)
- PIDM — What Is Debt Service Ratio
- Bank Negara Malaysia: Responsible Lending Guidelines — official DSR framework and maximum thresholds
- BNM Policy Document: Credit Risk — bank lending risk management requirements
- CCRIS (Central Credit Reference System) — credit reporting and score checks
- CTOS Score Guide — credit scoring methodology