How Does A Renovation Loan Work In Singapore?
February 9, 2023
There are a thousand words written about how does renovation loan work in Singapore. But what is surprising is that there are thousands of homeowners who search for that information daily. However, they end up disappointed because they can’t find satisfactory answers to their questions.
That’s why we decided to cover this topic. Before you spend thousands of dollars, we hope to give you the right information based on your repayment capacity. That way, you can return to your dream home every day.
Not only will you find out how does renovation loan work, we’ll also give you useful tips on home renovation. Let’s get started.
What Is A Renovation Loan?
Are you a homeowner who needs to restore or remodel the structure of your home? Are you looking to do repairs and fittings, remodel the kitchen, and paint the walls?
Well, you’re not alone. Many homeowners in Singapore face problems when trying to refurbish their hard-earned homes. This makes them frustrated because renovation costs are expensive.
If you’ve been in such a situation, there is one thing that you need – a renovation loan to take care of the necessary renovations that you want.
So how does renovation loan work? To get this loan, you need to undergo the loan application process with banks or licensed money lenders.
Once it is approved by the lender, the money is paid to the contractor you’ve selected to do the renovations in your home. Licensed money lenders usually disburse the amount in a lump sum to you, not the contractor.
Some lenders may want to ensure that the money is spent for its intended purpose.
So instead of requesting receipts, they may send their personnel to conduct site inspections to determine if the details in the quotation presented during the application process are being followed.
Like any other loan in Singapore, this loan has a loan tenure of one to five years, during which you must repay the principal amount and interest to the lender.
The renovation loan amount is normally $30,000 or an amount equal to six times your annual salary.
What You Can Use A Renovation Loan For?
A renovation loan in Singapore is used to assist you with home renovations. So it is not right for you to apply for one and misuse the funds.
To help you understand what you can pay for using the money, we’ve covered a list of what banks consider to be renovation work.
- Built-in cabinets and carpentry work
- Electrical and wiring work
- Exterior works and compound decorations
- Flooring and tiling
- Basic washroom fittings
- Painting and redecorating
- Ceiling or wall repairs
- Structural alterations
What You Need To Know About Renovation Loans In Singapore
A renovation loan is not the same as a personal or mortgage loan. For instance, the renovation loan is solely used for renovations, has a shorter loan term, and is paid to the contractor undertaking the renovations.
In other words, you must know how does renovation loan work before entering into a contract with a bank for a renovation loan.
Here is what you need to consider before applying for a loan.
Type Of Lender
Just like every other loan, you need to know who your lender is. You have to look at its reliability, and most importantly, its ability to restructure your loan repayment in case you fail to repay your monthly installments.
You don’t want to approach a lender that might not be able to finance your loan needs. If you choose a reliable lender, you don’t have to struggle later over loan-related issues because the lender changed its terms along the way, or miss out on a savings opportunity if you had chosen a different lender.
For example, getting a renovation loan from the same bank that approved your mortgage loan may get you a better interest rate because you already have a working relationship together.
In Singapore, the renovation loan amount should be six times your annual income or any amount equal to or less than $30,000.
It’s necessary to know how much you can borrow. So to get things started, you can have the contractor compile a quotation for you.
This is due to the fact that the bank must consider the loan’s eligibility based on the quotation. Be sure to get a few quotations from different contractors.
Secondly, consult your financial advisor on the viability of the loan after considering the interest.
What if you take out a loan to fix a few things in your newly acquired home or the existing one but fail to pay it back because the interest rate is high?
To avoid this scenario, you need to make sure you’ve done your calculations right by looking at the loan term, expected monthly installments, and other additional costs – before applying for the loan.
Aside from loan interest, there are also other additional charges that you need to know about and consider.
- A processing fee of 1% of the loan amount approved
- Late payment penalties
- An early repayment penalty fee of 1-2% of the outstanding loan balance
- A loan cancellation fee of 1% of the cancelled loan amount
So you already know what a renovation loan is, how does renovation loan work, what it can be used for, and what you need to consider before applying.
You’ve made up your mind and you want to apply. Here’s how you go about it.
How To Apply For A Renovation Loan In Singapore
In this section, we show you a five-step process that you can follow to get your renovation loan quickly.
1. Consider Your Eligibility
This is where you need to start your search for a renovation loan in Singapore. Are you qualified for the amount that you want?
To get an answer, assess the following factors:
- Your citizenship status
- If you’re a property owner and the value of your home
- You must be between the ages of 21 to 55
- A minimum of $24,000 salary per year
- Your joint applicant must be employed and have some relation to you
- You should have a good credit score
2. Get Renovation Quotations From Contractors
After making sure that you are eligible for a renovation loan, the next thing is to approach different renovation contractors for quotations and pricing.
You’ll want to make sure you find the right contractor that will provide you with not only a favourable but comprehensive quote.
This will help you avoid going back and forth with your contractor and the lender when renovation has commenced and your funds run short.
3. Approach Lenders
You definitely need a lender with attractive terms so that you save on costs, particularly on loan terms and interest rates.
So you need to approach as many lenders as possible and get their input on how much they can offer you and at what interest rate.
After that, settle on one lender that has the best interest rates, and loan terms and conditions.
4. Prepare Your Documents
Obviously, all types of lenders would want to know who they are dealing with (especially because of negative eventualities).
That’s why, apart from the eligibility criteria discussed above, you’ll need to get the following documents ready for your preferred lender:
- Most recent IRAS Assessment Notice
- Most recent three months’ payslips; or
- Previous 12 months’ CPF contribution statements
- Original contractor quotation signed by both parties
- Proof of ownership of the property to be renovated
- Proof of the principal applicant’s and joint applicant’s relationship (in the case of joint applications)
5. Start The Process of Applying For The Loan
Once your documents and other details are in order, the next step is to start the process of applying for the renovation loan.
All you have to do is complete the application form (this can often be done online), submit the documents required by the lender, and wait for the approval process to be completed.
Once the renovation loan is approved, you’ll be contacted. However, the total amount will be sent to the renovation contractor so that the project can start.
From time to time, you’ll see officials from the lender visiting your site. You don’t need to panic as long as you’re doing the right thing.
In any case, they’re just doing a follow-up on how their money is being used.
Ensure You Know How Does Renovation Loan Work
A renovation loan is a type of loan taken by homeowners who are interested in renovating, remodeling, and restructuring their homes.
Now that you know how does renovation loan work, you can apply for and receive any amount less than or equal to $30,000, or six times your annual salary. This amount is typically repaid over a loan term of one to five years.
Before applying, it is crucial to understand how the lender, loan amount, and interest associated with the renovation loan will affect the work done.
You must also prepare the documents required to process the loan and take into consideration how the money is disbursed.
If you find it difficult to get through the process alone, consider getting input from a loan consultant.
Can’t qualify for a renovation loan from a bank? Credit Thirty3 is a reliable licensed money lender that offers affordable interest rates and flexible terms.
Contact us now or apply for a loan today.