Buying a home in Singapore is an essential step in life that brings a sense of accomplishment. However, the whole process could be overwhelming for those buying a property for the first time.
With the increasing property rates, it could be challenging to buy a home with your savings. This is why most people need a home loan.
A housing loan from HDB is a good idea. But it is also a hefty responsibility when you consider the repayment period and amount. The good news is that you have the option of obtaining a HDB loan from a bank or HDB in Singapore when you buy a HDB flat.
When getting a HDB loan, you have to consider whether you are eligible and if you can afford it, among other factors.
This article will show you how to check HDB loan eligibility so you can get one step closer to owning your dream home.
A bank loan and a HDB concessionary loan have different eligibility conditions.
Normally for banks, a good credit score is important. However, your HDB loan eligibility depends on various conditions that you must meet before applying for a HDB loan. HDB states that first-time applicants should meet the following conditions:
- If you’re applying with a partner, at least one of you should be a Singaporean
- You should not have obtained two or more HDB loans
- For singles, families, extended families, the gross monthly household income should not exceed $7,000, $14,000 or $21,000 respectively
- You should not own or have sold any private residential property 30 months prior to the application of the HDB loan.
- You should not own more than one market or commercial or hawker stall or industrial property.
- You should know that if you have an unsalaried income stream such as manual jobs or freelance work, your monthly income may face what is referred to as a “haircut” where only 70% will be considered by HDB
- The loan amount will be determined by the extent the remaining lease can cover the youngest buyer to the age of 95
HLE Letter And Validity Period
A HDB loan eligibility (HLE) letter is valid for six months from the date of issue.
Within this period, ensure there are no changes in your financial situation or family size. After six months, you will need to apply for a new HLE letter if you are still buying a flat. It is recommended that you apply for this at least a week before the HLE letter expires.
In some scenarios, HDB may ask why you delayed your loan application. Repeated delays in your loan application may lead to suspicion and rejection when you apply for a second letter.
Credit Assessment Criteria
As part of HDB loan eligibility criteria, you must also meet credit assessment criteria to apply for this loan.
It is important to understand how HDB assesses housing loans, as this will increase your chances of approval. Flat buyers who qualify for a HDB loan have a regular income and a stable job.
If you have an income with a monthly CPF contribution, you are required to meet the following criteria:
- Have continuous employment for a minimum of three years if your basic salary is fixed. But if your salary is variable, you should be in continuous employment for at least six months
But if you have a salary without a monthly CPF contribution, you need to meet the below criteria:
- You should have continuous employment or trade for the least six months
- Have a good credit score as this will help to determine whether you qualify for the loan
- Have a continuous positive cashflow as shown in the bank statements for a minimum of six months, which you can use to service the housing loan
When To Apply For A HDB Housing Loan
You apply for a HDB loan if you:
- Have booked a new flat with HDB
- Applied to take ownership of an existing flat by way of transfer.
- Got the Option To Purchase (OTP) from a seller and submitted a HDB resale loan application
How, Where, And When To Apply For A HDB Housing Loan
Applying for a HDB housing loan requires several steps. First, you need to obtain an HLE letter. You can apply for this letter on the HDB website.
The HDB loan application process will entail providing personal details and financial documents for proof of income on the portal. After doing so, submit the required documents. You have now completed the application process.
HDB will usually send you the outcome 14 days after application. You can also follow up on your application on the portal.
Once the application is successful and you receive the HLE letter, HDB will contact you to finalise the process by asking you whether you plan to complete the mortgage payments in cash or through your CPF Ordinary Account (OA).
Factors That Determine How Much Housing Loan You Get
Higher costs pose risks to lenders. They have to follow various rules such as requirements for income ceilings for HDB loans.
The Singapore government wants to protect its citizens from unsafe borrowing behaviours that can lead to huge debts.
Several factors come into play before a bank can approve your HDB loan. The factors include:
Mortgage Servicing Ratio (MSR)
The MSR ratio only applies to HDB flats and executive condominiums. The MSR caps the amount you may spend on mortgage repayments to 30% of your gross monthly income. This means your HDB loan payment must not exceed 30% of your gross monthly income.
Total Debt Servicing Ratio (TDSR)
The TDSR puts a limit on the amount of money that you can spend monthly paying off your debts. The debts could be credit card debt, car loans, personal loans, student loans, or home loans.
Its limit is 55% of your monthly gross income. This was established to ensure that borrowers don’t take out loans more than they can afford. It also ensures lenders are more responsible with their lending practices.
Its main goal is to ensure the loans are only given to those who can afford them.
Loan-To-Value (LTV) Ratio
The LTV is the amount you are allowed to borrow for your home. This was set to prevent borrowers from overleveraging their income. The LTV ratio varies whether you are taking a HDB loan or bank loan.
The current LTV limit for bank loans is 75%, while the LTV limit for HDB loans is capped at 80% as of 30 Sep 2022. An LTV ratio of 80% means you are only allowed to borrow up to 80% of your property value.
The higher the LTV ratio, the more risk the bank has to undertake. A lender decides on the LTV ratio after checking the following:
- Mortgage loan terms
- All current debts and credit
- Any rebates, discounts, or other given benefits
- Monthly repayment amounts in proportion to gross monthly income
Apart from these ratios, banks will also check your pending debts when it comes to your HDB loan eligibility.
They will need to know how much you owe to gauge your ability to repay the loan. If they decide to give you the loan, they will adjust the maximum HDB loan amount according to your finances.
Banks will also check your age, remaining lease on the property, credit history, and income.
Can You Use Your CPF?
Before considering having a dream home, you should consider your HDB loan eligibility. You can use your CPF savings to service a portion of your home’s purchase price and repay the loan.
But there is a maximum amount you can use if you borrow a bank loan. Most people will utilise their CPF funds to pay for homes, but at the same time, CPF is meant for retirement.
The more money you spend on housing, the less you will have for retirement. Do not allow your total debt obligations to take over a big part of your income. Also, you should keep the CPF withdrawal limit in mind.
When the total CPF savings utilised to pay for your property reaches the limit, you and your partner may be required to pay the remaining monthly installments in cash.
When considering a mortgage, your ability to service the loan will significantly affect the amount you can borrow. Read up on the factors that influence how much you can borrow to see that you can get the amount you can afford.
Standards vary depending on the lender. But if you can’t get a bank loan, consider working with a licensed money lender that will give you the amount you need.
Get help from CreditMaster, a licensed money lender that offers flexible terms, less paperwork, and various financing alternatives to fit your financial situation.
Contact us now or apply for a loan with us today.