How Much Can You Get For Your Housing Loan?
October 19, 2022
Before buying a home in Singapore, the question “how much housing loan can I get?” should be a vital one to ask yourself.
Banks and licensed money lenders will determine your eligibility by scrutinising your credit score, current debts, assets, and income before deciding how much you can borrow.
Most lenders are willing to give you higher amounts if your credit score and income are good, but you should be clear about how much you really need.
You should note that the amount you are qualified to borrow is not what you should borrow.
This is because lenders will only check your current and past circumstances, not your future.
This article shows you how much you can obtain and how to get the best outcome when considering a loan from a licensed money lender.
Revised Maximum Bank Loan For HDB
Initially, a HDB housing loan could service up to 90% of the buying price for a new property.
But a recent rule imposed in late 2021 now states that the loan-to-value (LTV) ratio for such loans has been reduced to 85%. As of 30 Sep 2022, it was lowered to 80%.
This reduces the maximum amount a potential home buyer can borrow for a HDB flat.
How Much Can I Borrow For A Home Loan?
“How much housing loan can I get?” is a crucial question to ask before taking a loan.
If you intend to get a bank loan, you can borrow up to 75% of your property’s value.
For a HDB loan, you are now allowed to loan up to 80% of the property’s value. Bank loans are not limited to HDB flats – you can also use them to buy private properties.
However, you can’t decide on your own how much you can borrow.
HDB Loan Amount
You must check if you qualify for this kind of loan.
To know the HDB loan amount and the maximum amount you can get, you must apply for a HDB loan eligibility (HLE) letter from HDB.
The HLE letter offers more information about how much you can borrow, and the monthly repayments and terms and conditions.
How To Know The Loan Amount You Can Afford
How much you can loan from a bank should not be the only factor to check.
Firstly, you should only borrow what you can afford – regardless of what the bank decides to loan you.
To know the loan amount you can afford for a home in Singapore, consider the following:
These are the total costs you need to pay for your property purchase. Examples include:
- Option fee
- Stamp duty
- Renovation fee
- Agent fee
- Legal fees
- Balance downpayments
- Other payments
Firstly, you should consider the property’s price. Next, calculate how much you have on hand when you include your savings, proceeds from selling your old home (if applicable), and savings in your CPF account.
These are the ongoing expenses that you will need to factor in. They may include monthly costs such as property taxes and mortgage insurance.
Next, consider the monthly payments and see if you can afford them.
You should also note that the longer the loan tenure, the lower the monthly payments. However, it will increase the amount of interest you end up eventually paying.
Check Monthly Installments For The Loan
When you take a housing loan, you repay it through monthly installments.
You can check how much you will need to pay for these installments after calculating the borrowed amount, interest rate, and loan period.
As mentioned earlier, note that choosing a longer tenure for repayments will lead to lower monthly installments, but the interest you pay will be more.
Maximum Loan Period
To get around the restrictions posed by the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR), which affect the maximum loan you are given, you can request for a longer loan term to stretch the loan.
This will reduce your monthly mortgage servicing per month. We will elaborate on MSR and TDSR later.
Maximum HDB Tenure
Recent housing rules state that the maximum loans one can borrow are influenced by your age, loan tenure, property type, and whether you have pending house loans.
The law caps the maximum HDB tenure at 30 years and 35 years for private properties.
Calculating How Much You Need For A Mortgage Loan
How Much Housing Loan Can I Get?
You can use a mortgage affordability calculator to work out how much you need for a mortgage.
To calculate how much you need, you can base your calculations on your monthly debts, monthly installments, annual income, and downpayment.
While doing your sums, take the following factors into consideration:
These are the expenses you are committed to paying every month.
Examples include car payments, student loans, or credit card payments. You can always change these figures while using a mortgage affordability calculator.
The debt-to-income (DTI) ratio is calculated by dividing your gross monthly salary by your monthly debt payments. The ratio is expressed as a percentage.
Using the DTI ratio, a money lender will evaluate if you can manage the monthly mortgage payments and your ability to repay your loans.
Your annual income is the total amount of salary you get per year before any tax or other deductions. Check your CPF statements for this figure.
This is the amount you pay upfront to cover the purchase of a home. Most property loans require at least a 20% downpayment.
This is the amount the money lender will charge you for taking the loan.
Normally, the interest rate is viewed as an annual percentage of the loan balance. You will need to make payments for the loan with interest to the lender until you repay the total amount of the loan.
This is the time that you have to repay the loan.
Usually, borrowers are given up to 30 years for a loan tenure. It is important that you look for a lender that offers you a flexible loan repayment schedule based on your needs.
Private Mortgage Insurance
Most lenders request for private mortgage insurance (PMI) if you pay less than a 20% downpayment during the purchase.
This protects the lender from losses if you fail to pay the loan.
If you have your own home, you pay property taxes depending on the assessed value of the property or its purchase price, which impacts your expenses.
The tax rate varies depending on where you stay. A lender can help you calculate this.
What Is The Loan-To-Value Ratio?
The loan-to-value (LTV) ratio is used to compare the amount of your mortgage with the property’s value.
It is the maximum percentage of the property value that a lender will allow you to borrow to cater for the property’s purchase.
For instance, if you are told your LTV ratio is 75%, it means you are allowed to borrow up to 75% of the total amount of the property’s value.
The LTV was established to prevent borrowers from being over-leveraged. If you make a higher downpayment, this will lower your LTV.
Lenders will use this ratio to check if they can lend to you and whether they need private mortgage insurance.
If you go for private mortgage insurance, you will have to make higher monthly payments.
How LTV Works
Suppose you are buying a HDB resale property valued at $400,000, but the price the seller wants is $415,000.
This difference of $15,000 is called Cash Over Valuation (COV).
If it is a HDB concessionary loan, you could get a loan of up to $320,000 for your purchase (that is, 80% of $400,000).
Up to $80,000 (20% of $400,000) can be paid through cash, your CPF Ordinary Account (OA) funds, or both. But you will have to pay the COV in cash.
Banks offer a maximum borrowing of 75% LTV. For a bank loan, you can pay $80,000 (20%) using cash or your CPF OA. But $20,000 (5%) must be paid in cash.
What MSR And TDSR Are
When applying for a property loan, you need to know that a lender takes the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) into account. Both affect the maximum loan you are given.
The TDSR is a framework that limits borrowers’ spending on debts per month as a 55% cap of their monthly income. In other words, it is a percentage of your monthly gross income spent on debt.
On the other hand, the MSR is the percentage of your monthly gross income spent on mortgage repayment, including debt obligations brought about by HDB properties.
The MSR only takes your monthly housing loan repayments into consideration. It is capped at 30% of your monthly income, including your CPF contributions.
However, your gross monthly income is not involved in the CPF. If you choose a bank loan to purchase a HDB flat or executive condominium, your MSR and then TDSR will be taken into account.
Maximum LTV You Can Get From Banks And HDB Loans
How much housing loan you can take depends on the lender and your eligibility.
As mentioned earlier, while the maximum LTV is 85% for a HDB loan and 75% for a bank loan, HDB and banks are not required to approve the full amount.
They can opt to reduce the LTV or reject your application if they deem fit.
However, you can always rely on licensed money lenders. They prefer a lower LTV as it poses less risk.
Some lenders approve mortgage applications with the lowest interest rates when their LTV is 80% or below.
On the other hand, HDB offers loans to eligible borrowers at a negotiable interest rate. Even though it may seem expensive, keep in mind that you are allowed 75% and 85% of LTV on banks and HDB loans respectively.
Factors That Affect The LTV Ratio
Type Of Loan
HDB loans have a maximum loan amount of 85%, while for banks, it is 75%. Also, there are factors other than LTV when choosing a housing loan.
Your Age, Loan Tenure, And Pending Home Loans
The more home loans you have, the lower your LTV becomes, and the less you can borrow.
You will also have your LTV capped at 55% when you are older than 65 at the end of this loan term – or if a private property exceeds the loan tenure of 30 years, or 25 years for HDB properties.
Properties with 36 to 40 years left on their lease will have their LTV capped at 60%.
If the lender views your credit report and finds you have a history of defaulting or late payments, it will lower your LTV.
You can check your credit report with Credit Bureau Singapore. If you find issues, you can halt the loan application process to work on bettering your credit to stand better chances of qualifying for better loan terms.
In some instances, if you have no credit record to show for, it also lowers your LTV as the lender may refuse to offer you a loan because it is not sure of your creditworthiness.
To solve this, you can temporarily use your credit card for at least 12 months before the loan application and pay all your bills on time.
Nature Of The Property
The property’s value influences the LTV, but other factors are also considered.
Some banks will reduce the LTV of properties that they see have no market or are hard to get buyers.
Work Out How Much Housing Loan You Can Get
Before considering a housing loan, check how it will cost you to purchase and how the costs will affect your life and budget in the future.
HDB loans can be expensive over time, but are usually worth the struggle.
To get the optimum results, ensure you have a good credit history, have fewer debts, and have enough downpayment.
But due to the changing nature of interest, it is essential to check how the interest rate will affect your mortgage.
If you are thinking of getting a housing loan, check the rates of licensed money lender Credit Thirty3 for better terms.