One of the most common questions Singaporeans may ask before borrowing from a bank is, ‘’how much loan can I get from bank?’’.
The amount you can borrow from a bank in Singapore depends on several factors, which include your personal income, debts (credit card instalments), liabilities (any other personal loan) and your credit score.
Banks in Singapore may also consider how much you can afford to borrow, given your mortgage size and financial circumstances.
When borrowing a home loan, your biggest concern might be the initial cash outlay.
This guide makes it simple to determine how much home loan you can borrow in Singapore and how to plan your finances carefully for your home purchase.
How Much Can You Borrow For Your Home Loan?
Your eligibility for a home loan in Singapore depends on your income apart from other liabilities, such as debt to income ratio and existing personal loans.
Banks also consider the mortgage interests and the type of property you want to purchase before approving your loan.
Generally, when taking a home loan from a bank, you can borrow up to 75% of the property price, which means you may have to arrange for 25% of your house’s initial payment.
On the other hand, you can borrow up to 80% of your property price when taking an HDB (Housing & Development Board) loan.
Banks allow you to purchase any property depending on your loan amount, not just HDB flats.
However, HDB loans might be a better option if you are short on cash or have a low budget because you can cover the entire downpayment for the flat using your CPF (Central Provident Fund) account.
Banks usually levy floating interest rates for home loans, which can bring down your interest rate and allow you to become debt free faster.
Note: Floating interest rates are subject to revision every three months, depending on the inflation rates and the country’s economic situation. The Monetary Authority of Singapore (MAS) decides floating interest rates in Singapore.
How To Use A Home Loan Calculator
Another way to quickly answer your question about how much loan I can get from bank – is to use a home loan calculator. Try using an online home loan calculator to evaluate how much you can borrow from a bank.
You need the following to find your exact home loan amount:
- Borrower’s age
- Personal income proof
- MSR (Mortgage Servicing Ratio)
- Property’s age and current market value
- Property location
- Upfront cost of the house
Calculating your home loan enables you to gauge your ability to afford a home loan and move towards effective financial planning for your home.
If you still need clarification about your home loan, contact CreditMaster and talk to loan experts to learn more about your borrowing options.
Note: MSR refers to the proportion of the borrower’s monthly income that goes towards the repayment of property loans. In Singapore, it cannot exceed more than 30% of your income.
What Is The LTV Ratio?
The LTV (Loan-To-Value) ratio refers to the percentage of the loan you can borrow compared to the value of your home.
The LTV ratio depends on several factors:
- Personal Income
- Mortgage repayments
- Monthly repayments on the existing loan
LTV = Loan Amount/ Purchase Price of the Property ✖ 100
Let’s imagine you borrow $400,000 from a bank, and your property is worth $600,000.
LTV = $400,000/$600,000 ✖ 100= 66%
Thus, your LTV is 66%.
In other words, you can borrow up to 50% of the house value from the bank.
The lenders or bank determines your LTV ratio based on your assets, liabilities and income. Most lenders provide high-risk loans and expensive properties for lower LTV value.
Typically, a lower LTV value incurs low-interest rates, and a high LTV value increases your interest because of the risk involved.
In the end, LTV is essential factor banks use to assess risk when approving a loan. As a borrower, you must understand how LTV works and affects your loan application.
What Is The Total Debt Servicing Ratio?
Total Debt Servicing Ratio (TDSR) measures the proportion of your gross monthly income used to service debt obligations.
TDSR is used to assess a borrower’s ability to afford a loan. It includes all your monthly debt obligations, such as credit card bills and mortgage repayments.
Currently, TDSR in Singapore is capped at 55% of your gross monthly income. This indicates you can only spend 55% of your income towards debt repayments.
For example, if your gross monthly income is $10,000. You can only use $6,000 for your monthly loan repayments.
- A high TDSR means the borrower has a high-debt burden and is likely to miss monthly loan repayments. In this case, it may be challenging to get a loan from a bank.
- A low TDSR means the borrower has a low-debt burden and is less likely to miss out on monthly loan repayments.
There are other factors included in your TDSR calculation as well. One of them is a stress test where the bank artificially increases your interest rates to see if you can still afford monthly payments when interest rates hike.
Another factor that affects TDSR is income periodicity. If you are self-employed without a salary, the lender may decrease the income used for TDSR consideration by 30%.
Moreover, if you want to lower your TDSR, you can take a joint home loan with your spouse. Whereby the bank considers both your income when calculating the TDSR.
How To Lower Your LTV Ratio
A lower LTV ratio means being eligible for less amount of a home loan from a bank.
Here are a few factors which may lower your LTV value.
1. Credit Score
Banks will check your credit score before approving a loan.
Suppose you have a poor credit score and a history of late or non-repayments. Banks can identify you as a credit-risk borrower and lower your LTV ratio.
It can be challenging for you to secure a loan at a reasonable interest rate with a poor credit history.
Borrowers can prevent this by paying all their loans on time and maintaining a perfect credit score.
Note that even an unpaid loan repayment from 10 years back can lower your LTV ratio.
2. Location And Condition Of The Property
You will be eligible for a higher LTV ratio if your property or flat is closer to a central business district because such properties tend to have higher resale value.
The state of your property is also essential when banks consider your LTV ratio. You can borrow up to 75% of your house price if it’s a newly built apartment or a flat.
LTV ratio drops significantly for old properties and resale flats.
3. Borrower’s Age & Loan Duration
The LTV for private properties is limited to 55% if the loan tenure exceeds 30 years or if the sum of your age and loan duration is more than 65 years.
If you are 35 years when borrowing a loan, ensure that you can repay your loan amount in less than 30 years and before you turn 65 to enjoy a higher LTV.
On the other hand, a home loan for an HDB flat is capped at 55% if the loan duration extends beyond 25 years.
Hence, if a borrower is older and considering a long-duration loan, banks will lower their LTV ratio.
4. Unpaid Home Loans
If you have one outstanding home loan, banks can limit the LTV for your second home loan to 45%.
For the downpayment of the remaining 55%, you must pay half in cash and another half via your CPF account or cash.
Borrowers with two pending home loans will receive their third home loan with an LTV ratio of 35%.
Your LTV ratio gets lower depending on the number of unpaid home loans you have.
Lenders can further lower your LTV if your loan tenure exceeds 30 years in the case of a bank loan and 25 years for an HDB flat loan.
5. Pending Lease on Property
Properties with 36-40 years left on the lease have an LTV ratio capped at 60%.
However, you can pay 15% of the remaining property price using your CPF account.
For properties with less than 35 years left on the lease, banks may not approve a home loan. You can negotiate a private contract with the seller to purchase a house with fewer than 35 years of the lease.
Borrow Up To 75% Of The Property Price Through A Home Loan In Singapore
Buying a dream home is a symbol of social security for most Singaporeans, and the first step towards purchasing your house may start with a home loan.
As a borrower, if you are still thinking, “how much loan can I get from bank?” Don’t worry. Banks and other financial institutions use several factors to determine your loan amount, LTV and interest rate.Talk to several lenders and do thorough research before taking your home loan.
On a side note, remember banks are not your only option. You can also approach a licensed money lender like CreditMaster for a quick cash loan to finance your dream home.