How Much Can You Borrow For Your Home Loan?
Are you looking to buy a home? Are you wondering “how much can I borrow for a home loan in Singapore?”
Research shows that the most common question Singaporeans have about home loans is the starting amount. You may find that even the initial percentage to be too much for you.
Here is a summary of how HDB resale loans in Singapore work and how to calculate their borrowing limit.
How Loan Amount And Tenure Are Determined
The following are taken into consideration when calculating the loan amount and tenure.
Relationship Between Income And Debt
To determine your mortgage loan eligibility, banks consider your debt-to-income ratio.
The Total Debt Servicing Ratio (TDSR) measures how much of your monthly income goes toward paying off your debts. It should not exceed 55%.
When you purchase a HDB flat, the bank must also determine your Mortgage Servicing Ratio (MSR).
The MSR is calculated using the loan amount and your gross monthly income. It stipulates that your maximum monthly payment cannot exceed 30% of your gross monthly income.
By taking into account the TDSR, the MSR (only for HDB), the loan duration, and a medium-term interest rate of 3.5%, a maximum mortgage loan amount is determined.
Often, the maximum loan period is extended for younger borrowers. The loan tenure is 30 years for HDB flats and a maximum HDB bank loan term of 35 years for private properties.
If the loan duration is more than 25 years for HDB flats or 30 years for private properties, the maximum loan amount will be lowered to 55% of the property’s purchase price.
How Much Can I Borrow For A Home Loan?
There are a few ways that the HDB and lenders could use to determine how much you can borrow:
1. Mortgage Servicing Ratio (MSR)
The MSR displays the mortgage payment percentage of gross monthly income.
It is defined as a percentage of your monthly income when you pay off a monthly mortgage. You can get this figure through a mortgage calculator in Singapore.
When applying for a loan to purchase a home in a HDB flat or executive condominium (EC), your monthly payment cannot exceed 30% of your gross monthly income.
2. Total Debt Servicing Ratio (TDSR)
The TDSR measures how much of your monthly take-home pay goes toward servicing your debts.
To qualify for a mortgage or a loan secured by real estate, you must abide by TDSR requirements.
The housing loan calculator in Singapore indicates:
Total monthly debt service ratio = monthly income divided by absolute monthly debt service.
Total monthly debt payments (including mortgage, automobile, and credit card payments) must not exceed the TDSR threshold of 55%.
3. Loan-To-Value (LTV) Ratio
The maximum loan-to-value (LTV) ratio in Singapore determines the loan amount you can get on a piece of real estate.
The following factors are considered by lenders when extending LTV:
- Existing credit lines, loans, and other financial resources
- The time frame of the loan.
- The percentage of monthly income that goes toward the monthly payment
- Any form of financial assistance, whether in the form of a rebate or discount
- For individuals, the maximum LTV allowed is determined by the total amount of the outstanding mortgage debt
What Is The LTV Ratio?
You can estimate how much money you can borrow to pay for a home using the LTV ratio in Singapore.
If the loan-to-value ratio is 75%, for instance, you could borrow up to 75% of the property’s purchase price or appraised value, whichever is lower.
The term Cash Over Value (COV) refers to the disparity between a home’s purchase price and its current market value.
The maximum LTV ratio for HDB concessionary loans decreased from 90% to 85% as of 16 Dec 2021. You can pay the remaining 15% in cash through your CPF Ordinary Account (OA) or a combination of the two.
There is a cap of 75% on the LTV ratio of a bank loan. A minimum cash payment of 5% is required to cover the remaining 20%, which can be paid with a combination of cash and your CPF OA.
There is no distinction between property types concerning LTV ratios. Instead, they vary depending on which lender you go through.
With a minimum cash downpayment of 5% and the remaining 20% paid with cash and CPF OA, the maximum LTV for a bank loan for an HDB home is 75%.
How Does The LTV Ratio Work?
Suppose you have $500,000 to spend. You may purchase a pre-owned four-bedroom HDB property in Singapore.
On the other hand, the seller offers $515,000 for their home. The term COV describes the extra $15,000.
HDB Concessionary Loans allow you to borrow up to 85% of the purchase price, or $425,000. The $15,000 COV is not covered by the loan. This COV is a cash-only item.
The maximum housing loan in Singapore is then 75% of $500,000.
Next, you can use up to $100,000 (20% of $500,000) of your CPF OA to pay for the purchase. The remaining amount ($40,000, or 5% of $500,000 + COV) must be paid in cash.
The Monetary Authority of Singapore (MAS) prohibits using a bank loan for the initial investment. It also includes guidelines on how much you can loan from HDB.
Factors That Lower The LTV Ratio
Remember the maximum LTV ratios for both HDB and banks mentioned above?
Well, they have the liberty to lower the LTV ratio to their liking depending on a few factors. In a nutshell, some of them include:
- There was still an active lease on the property
- Property location and condition
- Existing mortgages
We’ll now elaborate on each of the points.
An Active Lease Was Still In Place For The Building
The typical LTV for homes with 36 to 40 years remaining on the lease is 60%.
Up to 15% of the purchase price or appraised value can still be paid with CPF (whichever is smaller).
No conventional mortgage lender will finance a property purchase with a lease term of 35 years or less.
In addition, you cannot utilise your CPF to pay a lease on a property with less than 30 years left.
You may have heard that such homes can be purchased with installment payments.
This typically occurs when a buyer and a seller negotiate a private contract with the help of an attorney.
A specialised loan for affluent buyers with access to private banks may also be possible.
Property Location And Condition
The maximum LTV might be significantly reduced based on the property’s location and overall appearance.
Homes in dangerous neighborhoods or other less desirable areas may have a lower LTV cap.
Poorly maintained or problem-prone buildings, such as a condo where residents have sued the developers for defects, may result in a lower LTV from the lender.
This limits the loan amount you can get from a bank.
The combined LTV of your first and second mortgages cannot exceed 45%.
The remaining 55% downpayment must be paid in cash, while the remaining percentage may be paid with either cash or your CPF OA funds.
The maximum allowable LTV ratio for borrowers with two existing mortgages and an application for a third mortgage is 35%.
The above LTV ratios are valid only for 30 years or less.
For borrowers over 65 years old or with loan terms greater than 30 years, the LTV can be significantly lower (or 25 years for HDB).
Your credit score will be one factor considered by lenders when you apply for a mortgage.
If you have a history of paying debts late or not at all, lenders may view you as a high-risk borrower.
In such instances, banks may then offer you a lower LTV than the maximum 75%.
You can avoid this by consistently meeting your debt repayment deadlines. This includes your mortgage, credit card, and other loans.
You may be better prepared for your next property purchase now that you have a greater understanding of the criteria for determining your home loan restrictions.
Make sure you shop around for the best mortgage rate and terms possible.
Your Age And The Loan Term Duration
If the loan duration is more than 30 years or your age plus the loan term equals 65, the maximum LTV for private properties will be 55%.
If the loan duration is more than 25 years or the loan term plus your age is more than 65, the maximum LTV for a HDB apartment is 55%.
The HDB maximum loan tenure of 75% is only eligible for borrowers below the age of 65.
In addition, the LTV might be lowered to 25% if you still have a mortgage on your home.
How To Get A HDB Loan
If you wish to buy a HDB unit, you could apply for an HDB loan.
To qualify for an HDB loan, the property’s price or value must be at least 85% of the loan amount.
HDB will make this decision based on whether these two figures are lower in relation to your credit history.
The amount of an HDB loan is based on:
- Buyer’s age
- Monthly income
- Financial status
To what extent do your qualifications meet the requirements?
To determine if you qualify for an HDB loan and how much you can borrow, you must fill out an HDB Loan Eligibility (HLE) application.
You will then find out how much you qualify to borrow, how much you’ll pay monthly, how much money you’ll need, and more – with the aid of the HLE.
To qualify for a bank loan for a condo or a HDB loan, your annual income must fall within a specific range.
Get Help With A Home Loan Now
All in all, there are plenty of ways in which you can get your home loan.
You now have a deeper understanding of the loan amount to expect depending on your financial status, age, and other factors.
But if you are still wondering “how much can I borrow for a home loan in Singapore?”, you may seek assistance from a trustworthy lender, Horison Credit.
Here, you will receive better mortgage rates and find out how you can borrow funds for your home loans.