How Much Loan Can I Get From A Bank In Singapore?
February 24, 2023
Do you ever wonder how licensed money lenders like banks get the information they need to decide whether they will approve your loan or not?
Borrowing is not as simple as it sounds. Multiple agencies and factors work together to determine whether you’re worthy of the money you want.
There are tens of these factors that determine how much loan you can get from a bank in Singapore alone. It’s not the obvious factors like credit history, salary, and repayment guarantee alone (well, those are fundamental factors), but a lot more that you might be ignoring – but at the end of the day, they cost you the loan amount you deserve.
To help you understand how your loan limit is determined, we’ve put together this guide that will take you through everything that you need to know about how much you can borrow.
How Much Can You Borrow For Your Home Loan?
Everyone in Singapore now takes a loan from one bank or another for home loans. But then the question becomes, “How much can you really borrow for your home loan?”
Your loan amount is determined by various factors, including how much equity your existing home has, the value of the property or personal assets that you have, your savings and investments, and your income.
Since your employment record closely ties in with your income, lenders look at it to assess stability and reliability.
Doing this enables them to determine the repayment risk of the loan – where individuals who’ve worked in a given position for a long time get an upper hand that those who’ve just entered the job market.
If you plan to take a loan, it’s a good idea to begin by knowing your credit score because it tells the lenders your financial situation.
Since home loans take time to repay, lenders will not want to take a bet on someone who might not be able to pay back what they have taken.
Some people might want to take multiple mortgage loans, while this is a good idea to own property – especially if you find one going at an affordable rate – but banks will not take chances on that because of the loan size.
In that case, it might be a good idea to take one mortgage loan at a time and don’t default on it because it will affect your ability to borrow again.
How much money have you saved or invested? This is a critical factor that banks and lenders look at before deciding to lend to you.
Some other banks do a background check on your debts and liabilities along with a combination of other factors like bank and investment statements to determine how much they can give you for a home loan.
What this means is that before you decide to approach a bank for a loan, you need to calculate your own net worth so that you don’t end up disappointed if the bank declines your loan request.
However, doing this on your own can be extremely difficult – especially if you’re not good with accounts or you’re not sure how to do it. That’s why a housing loan calculator has been designed – and is available for anyone interested in Singapore to help you calculate how much you can borrow and repay a financial institution.
So considering all those factors, you’ll realise that there will be different categories of people needing to borrow home loans.
This means the criteria may vary between individuals in such a way that what works for one might not necessarily work for the other.
Since a home loan calculator is the most common one, let’s take a look at how it works.
How To Use A Home Loan Calculator
A home loan calculator assists in the calculation of the loan installment. It is an easy-to-use calculator and acts as a financial planning tool for a home buyer. However, results depend on many factors, including the assumptions you provide. It generally helps you to plan and offer recommendations on the following:
- Monthly mortgage payments
- Length of a mortgage in years
- Fixed or adjustable interest rate
- Interest rate and annual percentage rate (APR)
- Closing costs, which may include attorney or lender fees, title insurance, and other expenses
To estimate your monthly mortgage payment, home loan calculators require the user’s input on the following factors:
- Price of the home you plan to buy
- Downpayment percentage or amount
- Property location and type
- Monthly taxes, insurance, and other fees
- Your credit score and other personal information
Based on your input, the calculator provides home loan options and estimates.
That’s one down, but as we said earlier, there are several other factors that will determine your housing loan in Singapore.
Your loan-to-value (LTV) ratio is the one that takes into account the ratio between the loan you’ll get and the current market value of the property you’re buying.
In the next section, we’ll take a look at what Singaporeans need to know about the LTV ratio and how to use it.
What Is The LTV Ratio?
In mortgage terms, this is the percentage of loan money as compared to the value of your home. So if you want to buy a home, you’ll have to calculate how much interest will be paid on the loan using the LTV ratio.
In Singapore, the LTV ratio is up to 80%, so if you want to buy a property worth $100,000, an HDB can loan you up to 80% of that amount.
Now, if you have a higher LTV ratio, the interest rate on repaying that loan will be higher because of the risks associated with borrowing huge sums of money.
However, a lower LTV ratio means a lower interest rate because of the little default risk the lender has to deal with.
That’s why everyone who wants to purchase a home in Singapore today has to do everything it takes to lower their LTV ratio – for lower interest rates on their borrowing.
Although banks can continue loaning you money so that you can repay with higher interest rates, they always take precautions.
They have to check your ability to service your debts – something called a Total Debt Servicing Ratio. Read on to discover what it means.
What Is The Total Debt Servicing Ratio?
Everyone knows the single most important eligibility criterion that banks use to determine your loan amount is your ability to repay.
No bank is going to loan you $180,909, which you won’t be able to repay, instead of $20,000, which you can comfortably repay – just because you applied for it.
That’s exactly what a Total Debt Servicing Ratio (TDSR) is used for – to determine your ability to repay a loan or extend your credit.
So if your TDSR is high, chances are you may not be able to service your loan. Conversely, if your TDSR is low, you are likely to repay your loan on time, as agreed upon. Therefore, you need to assess whether you stand to get a loan today if you applied for one or not based on your current TDSR.
But how do you calculate your TDSR? It’s simple: Take your current gross monthly income and divide it by your monthly debt repayment.
What you get out of that is your TDSR. But banks tend to do it differently; from time to time they may make adjustments to your interest rates to see if you can withstand such future changes, something called a stress test.
To put this into perspective, let’s take a look at what actually happens when calculating your TDSR.
To start with, currently, in Singapore, the TDSR is capped at 55%, so what that means is if your gross monthly salary is $30,000, the amount of debt you stand to service at maximum is $16,500.
Finally, because there are lots of people in Singapore who are self-employed but do not have a fixed or determined income – and most of them borrow a lot – there has to be a way to take care of them.
Banks determine their TDSR by first reducing their monthly income projections by 30% because of the uncertainty of getting a certain income in a given month.
Take This Next Step For Your Home Loan
To sum up, there is no definite amount of money (loan) you can get from a bank in Singapore.
They all differ from one person to the next or from one bank to the next due to a variety of factors ranging from the application process to approval and even the aftermath. Such factors include your credit score, income, credit history, type of property you want to purchase, ability to service your loan, loan-to-value, and so much more.
To succeed when dealing with loans, you must be clear on what you require and follow the proper procedures.
That’s why using digital applications such as home loan calculators and providing necessary information to your lender is important in this whole process.
And if you need any financial assistance or consultation on property and loans in Singapore, touch base with Credit Thirty3.
We would be delighted to assist you in making sound borrowing decisions, among other things.