How Much HDB Loan Can I Get? Understanding Property Financing in Singapore
September 19, 2023
Currently, the Monetary Authority of Singapore restricts how much residents can borrow to 12 times their monthly revenue. This ensures that people don’t over-borrow and suffer from financial hardships. Before taking a home loan, analyze the available options and make the best choice.
Evaluating all your resources will help you determine what you can afford and how much HDB loan or bank loan you can take. HDB loans require a 15 % down payment, while bank loans require 25%.
Key Points To Note
- Choose a property depending on what you can afford regarding down payment and monthly installments.
- The amount you can borrow depends on the lender’s evaluation and rules like TDSR (total debt servicing ratio) and LVT (loan to value) limit.
- You can qualify for an HDB loan if you are purchasing an HDB flat.
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Considerations When Buying A Home In Singapore
Purchasing a property is a huge decision that needs careful consideration. That’s true, especially in places like Singapore, where home prices and regulations are unique. Therefore, ensure you purchase a house you will afford in the long run.
You need adequate funds to pay for down payment, monthly installments, and continuous homeownership fees. Here are the three major considerations when buying a home in Singapore:
- Initial costs: When purchasing a home, there are various initial expenses that you must consider. Have a down payment, the percentage of the home’s buying price required upfront. Other costs include legal charges, stamp duty, agent’s commission, remodeling, and other miscellaneous expenses.
- Recurring expenses: It’s also important to consider ongoing costs that come with property ownership, as they can greatly impact your budget. After taking a loan to fund your home purchase, monthly payments include property tax, management & conservancy service charges, and fire & mortgage insurance. You will also need enough funds for future interest rates and a potential drop in home value.
- Monthly loan installments: These fees will depend on factors like loan amount, loan term, and interest rate. Every monthly installment comprises a principal and the interest. Opting for a long payment duration means your monthly installment will be small but your interest high. So, it’s important to require a repayment schedule from your lender. This will help you make an informed decision.
Evaluating Your Current Financial Position
Assessing your current financial position ensures that you can afford the home purchase and manage all the costs of homeownership. Assess your revenue by calculating the total monthly income after all taxes. Consider your sources of income, such as salary, investment, bonuses, and other sources.
Ensure you have enough cash savings to meet the down payment and keep up with the monthly installments in case of revenue loss. This consists of savings accounts, money market accounts, certificates of deposits, and other liquid assets.
CPF Ordinary Account savings will help you fund all housing-related costs, such as down payment and monthly installment. So, your amount in this account will determine how much you can borrow. Before you use your CPF savings to buy a home, consult a financial advisor familiar with Singapore’s CPF system.
Income consistency is vital in defining how much you can pay for a home. Lenders utilize the standard guideline known as the debt-to-income ratio to evaluate your capability to manage home loan payments. Loan insurers want to ensure that you have a reliable and stable source of income to sustain the loan repayments.
Determining Your Borrowing Capacity In Singapore
Your borrowing capacity is defined by different aspects such as your income, current financial commitments, government regulations, and credit history. In Singapore, HDB lenders will analyze how much you can borrow in three major ways:
Mortgage Servicing Ratio (MSR) In The Singaporean Context
The mortgage servicing ratio reflects the percentage of a borrower’s gross monthly income used to repay all the property loans. 30% is the maximum MSR accepted. Note that the MSR only applies to purchasing EC and HDB flats.
Here is how to compute your MSR:
Monthly installment for all property loans divided by gross salary multiplied by 100%.
Total Debt Servicing Ratio (TDSR) And Its Relevance In Singapore
The total debt servicing ratio is a lending metric that lenders use to evaluate a borrower’s ability to take a home loan. TDSR is computed for any loan to purchase a home, any loan secured by a home, and the refinancing of these loans. This is important since home loans are long-term and massive liabilities for people. TDSR computes the portion of your gross income to pay debts, including your projected home loan. 60% is the current TDSR limit.
TDSR is calculated as:
Total monthly debt obligation + projected monthly loan repayment/ gross income.
Loan-To-Value Limits: Considerations For Lenders In Singapore
The loan-to-value limit is the maximum amount someone can borrow from a home loan depending on the loan duration, borrower’s current loans, borrower’s age, and if the debtor is a shell company.
Currently, the maximum LTV for HDB concessionary loans is 80%. Bear in mind that there is no change to the amount of upfront cash needed when signing a contract for lease for units bought directly from HBD. The down payment remains at 10% and must be paid via cash, the CPS savings account, or even both.
The maximum Loan-to-value for bank loans stands at 75%. The other 20% can be repaid via the combination of your CPF ordinary account or cash, but an absolute minimum of 5% should be paid in cash.
Remember that financial institutions and banks aren’t obliged to provide you the maximum Loan-to-value. Your LVT might be lower due to outstanding home loans, remaining leases on the property, loan duration, credit score, and age.
Understanding HDB Loans in Singapore
The key aspect is that an HBD loan has an income ceiling of S$21,000 for extended families and S$ 14,000 for couples. If the yearly assessable income for two applicants surpasses this amount, the borrower will have to apply for a bank loan. The purpose of an HBD loan is to make housing loans with stable terms accessible to those who may not qualify for a loan.
Even though the HBD home loans might seem a godsend, the lenders have managed to conduct fiscal prudence. That means a lower income will give you a low maximum loan amount, influencing the kind of HDB flat you can buy.
The eligibility criteria you must meet if you want to apply for an HDB loan include:
- Be a Singapore citizen
- Be above 21 years
- Have a gross family income of less than 21,000 for extended households and 14,000 for couples.
- A buyer shouldn’t own any private residential home in the 30 months before the time of applying for the HLE letter. Also, a buyer shouldn’t have more than one hawker/market stall or industrial/commercial property.
- Buyers can’t have more than two home loans from HBD. For buyers with one HBD home, the last owned property shouldn’t be a private residential home.
Variables Determining The Hdb Loan Amount
The amount of HDB you can get will depend on three major factors:
- Your age: Your age will affect the loan duration and amount. Young borrowers can qualify for longer loan duration and higher loan amounts.
- Your income: Your gross monthly income greatly determines the HDB loan amount you qualify for. Typically, higher income will attract a high loan amount.
- Financial standing: Your current financial commitments, like other debts, will impact the HDB loan amount you qualify for. Typically, lenders consider the borrower’s debt-to-income ratio when putting in a loan amount.
The Role And Significance Of The HDB Loan Eligibility (HLE) Letter In Singapore
The burning question facing right now could be: How much HDB loan can I get? You can get an answer by applying for an HDB Loan Eligibility (HLE) letter. This specifies the maximum HDB loan amount you can get and helps you determine eligibility.
You need to obtain the HLE letter before your first appointment. The letter allows you to plan for your property purchase by offering you details on how much you can borrow, monthly installment, and the amount of money you need.
Contrasting Singapore’s HDB Loan With Bank Loans
Since you have a clear image of what bank and HDB loans entail, here is a contrast of the two types of home loans:
|Bank loan||HDB Loan|
|Borrower eligibility||Less strict (good credit score needed)||Strict (income ceiling and citizenship prerequisite)|
|Down payment||15% upfront payment that can be repaid using cash, CPF or a mix of both||25% upfront payment that should be paid in cash and the remaining 20% paid in CPF, in cash or both|
|Early penalty||1.5%||No penalty|
|Interest rate||1.2-3% per year depending on market fluctuations||2.6% per year|
|Late repayment penalty||Less lenient as it attracts late payment charges||Lenient with a 7.5% yearly late payment fee|
|Loan to value limit||75%||80%|
|Maximum loan duration||Up to 25 years||35 years for private property and 30 years for HDB flat|
|Minimum loan amount||At least S$ 100K||None|
|Mortgage servicing ratio||39%||30%|
|Property eligibility||Both private property and HDB flats||HDB flats only|
|Refinance option||Can switch between banks, but can’t switch to HDB loan||Can switch to bank loan|
|Repayment amounts||Inconsistent||Consistent because of stable rates|
|Total debt ratio||Not available||55%|
Apply For Your HBD Home Loan Now
Deciding between a bank loan and HDB isn’t easy. Your personal preferences and financial standing will play a huge role in this process. They assist you choose the best housing loan that fits your lifestyle and budget. Once you decide to go for an HDB home loan, click here to find the best home loan to secure your dream home.