In Singapore, a home loan is essential, whether you are a first-time buyer or seasoned in the mortgage industry. The upfront cost is often a significant issue for many Singaporeans.
Since the cost of a home is so high, even a tiny shift in interest rates for a loan can have a significant impact.
Here’s a concise guide to getting a home loan in Singapore and figuring out how much you can borrow.
How Loan Amount And Tenure Are Determined
The duration of a loan is the time you have to repay the principal and interest.
The HDB loan maximum loan tenure can be anything from one month to 25 years. It all depends on the lending institution.
The lender considers several factors before settling on a specific term. Fixed-payment loans have a set repayment duration, while variable-payment loans have an estimated repayment period.
Borrowing for a home or mortgage often entails a lengthier repayment period than other loans.
Factors That Affect the Length Of A Loan
Lenders consider the following criteria when establishing the terms of a home loan:
Age Of The Borrower
Financial institutions will consider your age when deciding whether to lend you money.
Since they have longer working careers ahead of them, younger people in their 20s and 30s can choose for lengthier tenures of up to 25 years.
This is in stark contrast to people who, at the age of 50, have only a handful of years left before they can finally relax and enjoy retirement.
When determining the monthly payment, lenders also consider the borrower’s age.
The monthly payment (EMI) on a loan with a longer repayment duration is smaller than that of a loan with a shorter repayment period.
Financial institutions rarely extend a loan term to someone who is only a few years from retirement.
Gross Income
Before deducting taxes and other commitments, this refers to the prospective homeowner’s income. It can include profits from various sources, such as a full-time job or a side hustle.
Mortgage-To-Income Ratio
Using a housing loan calculator, you can calculate the mortgage-to-income ratio in Singapore.
This ratio is the portion of your annual gross income that can cover your monthly mortgage payment. This is why an essential factor in this is gross income.
Your monthly mortgage payment, abbreviated PITI, will comprise four parts: principal, interest, taxes, and insurance.
Generally, it shouldn’t be over 28% of your gross income. However, many loan providers allow borrowers to go beyond 30%.
Debt-To-Income Ratio
Use a mortgage calculator in Singapore to determine what proportion of your income can pay off your debts. Loan balances are part of the debt.
You can’t buy the house of your dreams with a debt-to-income ratio of 50%, though. Lenders often set a maximum debt-to-income ratio of 43%.
How Much Can You Borrow?
You may ask yourself, “How much can I loan from HDB?” or “How much loan can I get from the bank?”
You can borrow up to 75% of the value of your property from a bank. On the flip side, a HDB resale loan can still cover up to 90% of that cost.
With a bank loan, you can invest in any property, not simply HDBs.
A home loan from a bank will have cheaper total interest charges because banks use adjustable interest rates. As a result, homeowners can get out of debt more quickly.
If you are short on funds, a HDB loan is preferable because you can use your CPF account to pay the entire downpayment. The advance payment is often 15% less.
The biggest drawback of HDB loans is that they have higher eligibility requirements based on your family status and income.
What Is The LTV Ratio?
The Loan-To-Value (LTV) ratio measures how much of a loan you can get for a house purchase.
The phrase is most frequently used in real estate deals when the asset is typically a piece of property.
A property’s Cash Over Value (COV) is the amount by which its asking price exceeds its fair market value.
HDB Concessionary Loans have lowered their maximum LTV ratio in Singapore from 90% to 85% as of 2021.
To cover the remaining 15%, you can use either cash, your CPF Ordinary Account (OA), or a combination of the two.
The maximum LTV ratio for a bank loan is 75%. You can use either cash or your CPF OA to cover the remaining 20%, with a mandatory minimum payment of 5% in cash.
Remember that the LTV ratio does not change depending on the property you buy – but on the lender you choose.
How Does The LTV Ratio Work?
Subtract the loan amount from the property’s value to get the LTV ratio. If you borrow $100,000 against a home worth $150,000, your loan-to-value (LTV) ratio will be 66%.
Lenders typically set a lower maximum LTV for higher-risk loans or loans for more expensive properties.
A lender can insist on a lower LTV ratio, say 50%, if your home is somewhat old or your income is modest. The maximum loan amount you will get from this lender is half of what the property is worth.
However, if your situation is low risk, the bank loan for a condo rises to 75% of the purchase price. You can borrow up to 90% of the flat’s worth if you take out a HDB loan.
Lenders rely heavily on the LTV ratio to gauge risk. It is essential to have a firm grasp of this ratio and its significance when applying for a loan.
Factors That Lower the LTV Ratio
The bank will only provide a smaller sum if there is a low LTV ratio. Here are some potential problems that might cause that situation:
Lease Terms Are Still in Effect
If you don’t have a private agreement with the seller, properties with less than 35 years left on the lease will not be eligible for bank financing.
The maximum LTV for properties with 36 to 40 years remaining on the lease is 60%.
But one piece of “positive” news is that you can use your CPF to pay 15% of the 40% advance payment. That’s only a fraction (around 6%) of the total cost of the apartment.
Prior Defaults On Home Loans
Your LTV ratio drops to 45% if you have one overdue mortgage.
In addition, you’ll need a 50% cash downpayment on a 55% mortgage. So, you’ll need to put down 27.5% of the total cost of the property you’re interested in.
If you currently have two house loans with outstanding balances, the highest LTV you can get is 35%.
What that amounts to is a massive 65% cash advance. Of course, that’s predicated on two things happening first:
- The length of the loan is under 30 years
- You will be under 65 years old when the term ends
If you don’t match these criteria, your LTV will be significantly lower.
Location And Property Condition
Greater LTV ratios are available for properties in proximity to the Central Business District. That’s because lenders believe such houses to have a higher resale value.
The condition of the property is also essential. If it is a newly built condo and you have no other mortgages, you can borrow up to 75% of the value.
However, the maximum LTV will be much lower if the apartment is an older resale apartment.
Age And Tenure Of The Loan
The loan amount you can borrow from the bank depends on several factors, including age and the time you plan to repay it.
If the loan term is 30 years or more, the maximum LTV for a private home loan is 55%.
The maximum bank loan for HDB units with a loan duration of over 25 years is 55%. The same will happen if you don’t repay your loan by age 65.
Credit Score
Your LTV ratio can also decrease based on your credit score. Your LTV will drop to 40% if you have a bad repayment history.
Avoid this by making your regular loan installments on time. Also, avoid carrying a balance on your credit cards and using them to their maximum limits.
If you find yourself in the unfortunate position of having a poor credit score, read on to find out how to raise it quickly.
How To Get A HDB Loan
If you want to buy a HDB flat but your earnings are not nearly enough, it’s best to apply for a house loan.
CreditMaster is Singapore’s premier loan provider, and we’ve always worked to tailor our loans to each customer’s needs.
Since we know how important it is to have a comfortable place to call home, we provide home loans with competitive interest rates.
If you provide all the required paperwork with your application, we can get the money to you in as little as 24 hours. Call one of our helpful financial advisors today.
