Are you planning to purchase a new home but do not have funds ready?
If so, consider taking a loan from HDB or a bank. These lenders offer loan amounts up to 85% loan-to-value (LTV) ratio of the property’s value.
Such a loan can get you settled in your new home and allow you to use your current resources for other related costs.
However, if you are wondering “how much housing loan can I take?”, we’ll explain it below.
What Is The LTV Ratio?
The LTV ratio is the maximum amount you can borrow to finance the purchase of your new home based on its value.
Lenders or banks in Singapore use LTV to measure the relationship between the loan amount you’re seeking and the property’s market value to determine the loan amount.
In other words, if you want to purchase a new home and sell your old one but do not have enough funds, you can use the old property to secure a loan for the new one.
Using the LTV, lenders will check the equity value of your home in the current market state and decide if it is viable with the amount you are borrowing.
The LTV ratio is expressed as a percentage. If the LTV ratio is 75% , it means you can get a bank loan for a condo that is equivalent to 75% of your property’s value or purchase price.
The purchase price is often applied to condominiums and HDB flats. Banks accept an LTV of 75%, while HDB loans accept an LTV of 85%.
How Does LTV Work?
To help you understand LTV better, here’s an example.
Bank Loan
Let’s say you want to purchase a three-bedroom resale house valued at $400,000.
Since you do not have this cash, you can get a loan from the banks while keeping in mind that banks accept an LTV of 75%. This means you’ll get a loan amount of $300,000, or 75% of the property’s value.
You must pay 20% using a combination of your CPF Ordinary Account (OA) and cash. After paying the $80,000 (20% of $400,000), you can pay the 5% downpayment in cash.
HDB Loan
With a HDB loan, using the same example, the maximum amount you can borrow is 85% of the property’s value, or $340,000.
Again, you can settle 10% ($40,000) using your CPF OA and cash, and pay the remainder (5%) in cash.
What To Know About The Maximum LTV Ratio
Banks accept an LTV ratio of 75%, while HDB accepts an 85% LTV ratio. However, these lenders are not obliged to loan you the maximum LTV of 75% or 85%.
Instead, they can choose to approve a lower LTV or reject your application for the following reasons:
Location And Condition Of The Property
Properties based outside Singapore will get a lower LTV ratio, as well as those located in not-so-good neighbourhoods.
Properties in a poor or dilapidated condition warrant a low LTV ratio or rejection. In addition, lawsuits and civil judgements against the property may affect the LTV ratio.
Credit Score
Your credit score will also influence the outcomes of your loan application.
Cases of default and delayed payments are red flags that may prompt the lender to reject your application or lower the LTV limit from 75% to 60%.
Remaining Lease Period Of The Property
A home’s value depreciates over time.
This means a home with only 40 years left on its lease may get a lower LTV limit as it is not considered worthy collateral.
You may also be unable to use your CPF OA funds on such properties.
Your Age And Loan Tenure
There is a maximum age for home loans in Singapore.
Simply put, the younger you are (e.g. 35 years old), the higher the LTV ratio, and the older you are (e.g. 65 years old), the lower the LTV ratio will be.
In addition, a loan tenure that is longer than 30 years will cause the LTV to be capped.
That said, there are instances where a lower LTV (below 80%) could be a lifesaver.
Why You Should Lower The LTV Ratio
While the acceptable LTV ratio can vary based on the type of mortgage you’re seeking, aim for an LTV of 80% and lower.
This is because a lower LTV increases your likelihood of getting a loan with better interest rates and flexible repayment terms.
With such a loan, there would be no need to pay the mortgage insurance, which can save you tons of money.
Higher LTV ratios (above 80%) are considered risky. In order to protect itself in case of default, the lender may force you to pay for mortgage insurance.
What Can You Afford?
Before we answer your question “how much housing loan can I take?”, let’s analyse what you can afford.
Buying your home is fulfilling, but it is a long-term commitment that comes with various expenses.
As such, ensure the home you choose is affordable in the long run. You will need to have resources set aside to cater for all the expenses that will be required, such as:
Upfront Costs
These are one-off fees you’ll need to settle before you can fully own your new home. They include the:
- Downpayment
- Legal costs
- Agent’s fee and commission
- Option fee
- Stamp duty
- Miscellaneous costs
Monthly Loan Installments
You will also need to pay the monthly installments, including the principal amount plus interest payment.
The amount you pay in installments will depend on the principal loan amount, loan tenure, the interest rate, and how the rates are computed.
A longer loan tenure may come with smaller monthly installments but a higher interest rate. So be sure to have a repayment schedule from the lender to avoid default or delayed repayment.
Ongoing Expenses
These are costs that recur annually, monthly or weekly for the continued maintenance and ownership of your home.
Since not all expenses can be settled with your CPF funds, you’ll need to pay for them through cash or other means. These include:
- An increase in the LTV ratio due to a drop in the property value
- Monthly expenses for conservancy and management service fees, taxes, and mortgage and fire insurance
Ensure you have enough savings to cover these expenses.
If you need a home loan with flexible repayment terms and competitive rates, consider borrowing from CreditMaster, a licensed money lender in Singapore.
More on this topic:
How Do You Calculate Your Housing Loan?
How Do You Calculate A Bridging Loan?
Should You Apply For A Bridging Loan In Singapore?
How Much Housing Loan Can I Take?
Before you take a loan, calculate how much the funds you have on hand that can help settle the cost of buying a new home.
Include your CPF savings, income (steady or commission-based), and cash savings. If applicable, include the sales proceeds you’ll get from selling your current home.
Having this information will help you determine how much you can borrow. Typically, lenders and HDB will analyse your borrowing capacity based on these variables:
Mortgage Servicing Ratio (MSR)
The MSR refers to the percentage of your monthly income that you use to pay off your mortgage. The sum of monthly mortgage payments is taken into account.
It applies if you purchase a HDB flat or an executive condominium (EC) where the EC’s minimum occupation period is still active.
Your monthly payment for a HDB loan or EC cannot be more than 30% of your monthly income.
Total Debt Servicing Ratio (TDSR)
The TDSR refers to the percentage of your total monthly income that goes toward paying off your monthly debts. It is calculated as the sum of monthly debt payments.
Your overall monthly debt obligations (including credit card, automobile, and mortgage payments) shouldn’t be higher than the TDSR ceiling of 55%.
You must abide by the TDSR guidelines if you’re taking out a loan to buy a home or a loan secured by real estate.
Loan-To-Value Ratio
The LTV ratio is the maximum amount you can borrow to finance your new home purchase.
LTV = Loan amount / Property value
It is determined by:
- Loan tenure
- Existing loans
- Any savings, credits, or other perks received
- The monthly installment payment as a percentage of gross monthly income
Where the Option to Purchase (OTP) was issued after 6 Jul 2018, the following LTV limitations apply to bank loans for residential properties:
| Outstanding Housing Loans | LTV Limit | Minimum Cash Downpayment |
|---|
| None | 75% or 55% | 5% (for LTV of 75%)
10% (for LTV of 55%) |
| 1 | 45% or 25% | 25% |
| 2+ | 35% or 15% | 25% |
If the loan term is more than 30 years (or 25 years for HDB flats), or if the borrower is older than 65 years old, use the lower LTV limit.
Getting A HDB Loan
You can get a HDB loan if you are purchasing a HDB flat. As stated, you can borrow up to 85% of the HDB flat property value or the purchase price.
The loan amount you get will depend on your:
- Age
- Monthly salary
- Financial status
Eligibility Criteria
You must apply for a HDB Loan Eligibility (HLE) letter to determine your eligibility for a HDB loan and the maximum housing loan in Singapore that you can borrow.
Certain eligibility requirements, such as an income cap, apply to HDB loans. You can check your eligibility here.
Find Out How Much Housing Loan You Can Take
Getting a loan from a bank or HDB is an excellent idea when purchasing your new home.
However, factor in all your current resources when calculating how much housing loan I can take.
This will help ensure you can foot all the expenses of buying a new home, such as monthly installments.
Are you looking for a loan from a trusted money lender? Look no further.
Apply for a loan with CreditMaster, one of Singapore’s most trusted lenders, today – or contact our experienced loan officers now.
