How much housing loan can I get? This is a common question among homebuyers, especially those who are getting a home loan for the first time.
After all, buying yourself a home is not always easy, even if you’ve been employed for years. The initial amount needed is substantial, hence opting for a housing loan can be a viable option.
Before we talk on how you can calculate your housing loan limit, we will discuss other important things that are related to a housing loan in Singapore, including the HDB loan amount, the maximum HDB loan tenure, and the maximum bank loan for HDB.
Let’s start with defining some of the terminologies you are likely to encounter even as you think about how much housing loan can I get.
What Is The Loan-To-Value Ratio?
The loan-to-value (LTV) ratio is a financial term used to refer to the amount you borrow from a money lender, bank or any other financial institution to finance a home.
For instance, if the LTV ratio is at 75%, that means you are only allowed to borrow not exceeding 75% of the value of the property.
However, if for some reason, an evaluation on the property results in a higher price than its real value, that is known as Cash Over Valuation (COV).
On 16 Dec 2021, a new law came into force. According to the new law, the maximum LTV ratio for HDB concessionary loans in Singapore is now 85%, down from the initial 90%.
The law stipulates that you should pay the remaining 15% using funds in your CPF Ordinary Account (OA), cash, or both.
However, if you want to take the loan from a bank, the LTV ratio is 75%. You will then repay the remaining 20% using CPF OA funds, cash, or both. The law states that you have to pay the remaining 5% using cash.
Note that the difference in LTV ratios does not come about based on what property you intend to buy.
Instead, it is based on the source where you want to get the funding from (i.e. the lender).
What that means is if you want to buy a HDB flat, whether a BTO or resale flat, and you intend to get the money from the bank, be ready for an LTV ratio of 75%.
For a HDB loan, you may get the mortgage with an LTV ratio of 85%.
How The LTV Ratio Works
Let’s break down this for you with the aim of showing you how the LTV ratio can work in your favour.
Borrowing From HDB
Let’s say you are interested in buying a HDB three-room flat. You’ve agreed to pay the seller $500,000 for it. However, after an evaluation, the actual price for the flat stands at $515,000.
This $15,000 is what is referred to as the COV.
If you are opting for a HDB concessionary loan, it means you are allowed to borrow up to $425,000. This amount is 85% of what you agreed with your seller – $500,000.
You will need to pay 10% of $500,000 ($50,000) using your CPF OA or cash. The HDB loan does not cover the remaining $15,000 COV at all.
Therefore, you will be required to repay the COV amount using cash.
Borrowing From A Bank
If you decide to get your mortgage from a bank instead of HDB, you can borrow up to 75% of what you agreed with the owner of the property.
That means, you will borrow $375,000, or 75% of $500,000.
For the downpayment, you need to pay $100,000 from your CPF OA account, which is 20% of $500,000. You will pay the remaining 5% of the total amount plus the COV ($40,000) in cash.
It is important to note that under Monetary Authority of Singapore (MAS) regulations, you are not allowed to take a bank loan or money borrowed from a licensed money lender to service your downpayment.
Remember that no financial institution can guarantee you the maximum LTV ratio.
5 Factors That Affect The LTV Ratio
Sometimes the LTV ratio can change depending on some factors. Here are some of the things that can affect the LTV ratio:
1. Outstanding Home Loans
If you have an outstanding mortgage, things can be a bit tricky for you.
When a lender realises that you have a pending housing loan, your LTV ratio starts at 45%. You must pay half of the remaining 55% using cash and the other through your CPF OA funds or cash.
For two outstanding loans, the lender will set your LTV ratio at 35% with the remainder paid as shown in the first case above.
It is good to note that these ratios only refer to home loans with a tenure of not exceeding 30 years.
But if the person requesting the loan is 65 years of age and the loan tenure is longer than 30 years, then the LTV ratio can be even much lower.
Speaking of your age, here is another factor that can alter your LTV ratio.
2. Your Age And Loan Tenure
Four years ago, there were not many rules governing housing loans, particularly the LTV ratio. However, things changed on 6 Jul 2018.
Now, private properties that have a loan tenure of more than 30 years are capped at 55% LTV.
The LTV is capped the same if your age plus that of the loan surpasses 65 years.
Essentially, it means that if you are considering taking a HDB flat mortgage at 35 years old, you need to ensure you pay the loan before you are 65 years old.
If you turn 65 yet you haven’t paid your loan, your LTV will be 75%.
3. Your Credit Score
Your credit score is another thing that lenders will look at before they approve your housing loan.
In fact, banks are known to be notorious in checking this. Licensed money lenders check too but they are not as serious as banks.
If your loan repayment history is bad, you could be labelled a credit risk, something that can make some banks give you a much lower LTV (even lower than the allowable limit).
In fact, some banks and money lenders can decide not to loan you any money. However, you can prevent this from happening by repaying your debts in time.
4. Location And State Of The Property
It is reasonable to say the location of your property matters a lot. Properties in affluent neighbourhoods often attract a higher LTV.
On the other hand, if a property is located in an undesirable location or abroad, chances are it will attract a lower LTV.
Lenders will also give you a lower LTV if the flat or condo you are intending to purchase or develop is rundown or has major defects.
5. The Property Has A Remaining Lease
Properties that have 36 to 40 years left on their leases are often capped at 60% LTV. Thankfully, you can pay no more than 15% of the value of the property using funds from your CPF OA.
It is usually not possible to get a housing loan for properties that have a remaining lease of less than 35 years.
Besides, Singapore law does not allow you to use your CPF OA funds to pay for properties that have a lease of 30 years or less.
Other Things That Lenders Use To Determine Mortgage Amount
Apart from laws set by the government through the Ministry of Law, there is no specific law that lenders should use to determine how much to loan you. Each bank or licensed money lender is different.
As such, lenders can use a variety of determinants when calculating the amount to give you as home loan, such as the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR).
What MSR And TDSR Are
MSR and TDSR affect how much you can borrow for your housing loan.
This is the proportion of your gross monthly income you use to pay your home loan. It is calculated as follows: MSR = monthly mortgage repayment/ gross monthly income.
It is used for HDB flats and executive condominiums.
The maximum MSR for HDB and bank home loans should not exceed 30% of your gross monthly income.
Unlike MSR, which focuses on mortgage payments, TDSR considers all your monthly loan repayments. If you have a car loan or a credit card debt, it will be calculated in the TDSR.
It is calculated as follows: TDSR = total monthly debt payments/ Gross monthly income
Currently, your TDSR should not exceed 55% of your monthly income.
Find Out How Much Housing Loan You Can Get
If you’re still wondering “how much housing loan can I get?”
But if you still have questions on HDB loans and do not know where to get the necessary funds, visit CreditMaster, one of the most reputable licensed money lenders in Singapore.
Apply for a loan now in just five minutes or contact us for more information. We will be more than happy to hear from you.