How should you prepare before applying for a house loan?

If you're planning to apply for a house loan or mortgage with a bank but don't know where to start, how much you can afford, and how to prepare for your loan application,

We'd like to recommend some basic house loan steps you should know to prepare early on. This will help you understand your ability to repay the mortgage, establish a good financial history, and ensure your loan approval.


Know your loan ability and the amount you'll be paying to the bank.

The formula for calculating the house loan amount can be roughly calculated using the following formula:
(Monthly Income) X (60 times your income) = (Available House Loan Price)

For example, an income of 30,000 baht per month X 60 = 1.8 million baht, which is the minimum loan amount. Some banks may adjust the amount based on the criteria considered in the house loan process.

However, this limit is only available if you have no debt, so it's important to consider. This also includes our "debt-to-income" ratio, or in banking terms, the Debt Service Ratio (DSR). Most housebuyers are allowed to have debt of 30-40% of their income. The formula is:

(Monthly income) X (30% or 40%) = (Ability to repay the mortgage)
For example, income of 30,000 baht per month X 30% or 40% = 9,000-12,000 baht

This debt ratio refers to all debts, including car and mobile phone payments. Electrical appliances, etc. Therefore, assuming you have a monthly car loan of 8,000 baht, your remaining house loan repayment capacity from the bank is only 1,000-4,000 baht. This formula calculates how much you can borrow to buy a house using:

(1,000,000 ÷ 7,000) x (project loan repayment capacity) = (loan amount available)
For example, (1,000,000 ÷ 7,000) x 4,000 = a house loan of 571,429 baht.

*In this case, the borrower must have a debt load of 40%.

Once you know your bank loan repayment capacity and the price of the house you can borrow, you can choose a house that suits your needs and your budget.

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Save for a down payment

During the house buying process, another important aspect is saving for a down payment on a house or condominium. This is because banks have a rule that allows house loans of up to 90% of the house's value. For example, if a house costs 1 million baht, the bank will lend a maximum of 900,000 baht, with the remaining 100,000 baht being paid directly to the developer.

Therefore, various housing developments offer monthly down payment installments to the project during construction (the bank will release the loan once the house is completed). Typically, a down payment of 10-20% of the price is required.

For example, a detached house priced at 5 million baht requires a 10% down payment, equivalent to 500,000 baht, with 10 monthly installments, resulting in an average monthly down payment of 50,000 baht.

With the relatively high monthly down payment, it's important to prepare some savings for this down payment.

However, with the relaxation of mortgage loan (LTV) controls, buyers of houses and condos priced under 10 million baht and under a first-class contract can borrow 100% of the collateral value, with an additional 10% of the collateral value for necessary living expenses, such as house decoration, repairs, or additions. This debt, when secured by a house, carries a lower interest rate than an unsecured loan.

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Maintain a sound bank account

The next part of the house buying process involves the documentation. When applying for a house loan, the bank will request a six-month bank statement. During these six months, funds should be maintained consistently and not completely withdrawn. If you have additional monthly income, freelance work, or are a vendor who receives payment on a per-month or daily basis, these should also be transferred regularly.

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Pay your debts on time

Another factor the bank will examine is the "credit bureau," which will review the borrower's repayment history for the past three years. Any failure to pay on time within these three years, or what is commonly referred to as being on the "blacklist," which is defined as "a person with a history of poor repayment or failure to repay debts as agreed,"

is considered a borrower at risk of becoming a non-performing loan borrower. Therefore, if you apply for a loan for any product or pay your credit card bill, you must pay on time every time. Being on the blacklist can lead to the bank rejecting your house loan entirely.

Anyone considering a house loan can check their credit history. The National Credit Bureau Co., Ltd. offers a variety of credit bureau services. For more information, see here.

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Pay off all debt before applying for a house loan.

This follows on from point 1: having existing debts lowers the house loan amount. Therefore, any debt that can be paid off should be paid off immediately before applying for a house loan, even if there's not much time left. For example, a mobile phone payment, even if it's only three months away from being paid off, the bank will consider this debt as existing at the time of applying for a house loan.

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Unnecessary credit cards cancel them.

Many people hold more than one credit card because of the enticing offers offered by banks when they apply for a credit card. Even though they don't actually use them often, banks see the potential for borrowers to accumulate more debt later on from credit cards, which lowers their chances of getting a house loan approved. Therefore, before applying for a house loan, it's best to cancel your credit cards and keep them to just one or two.

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Prepare documents: payslips, employment certificates, and proof of additional income.

The final step in the house buying process is preparing documents for applying for a house loan with the bank. Special attention is given to proof of employment and income, such as payslips and employment certificates. We may need to request approval from the relevant agency, and some agencies may take longer to receive approval. Therefore, preparation is essential for a smooth house loan application.

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Article source: REIC