How Much Can You Borrow For Your Home Loan?
September 6, 2022
If you have come of age and you are ready to own a home, the question “how much can I borrow for a home loan?” may have crossed your mind.
Well, it’s a relevant question to ask. In fact, even if you already own a property and are thinking of buying another, you may still be wondering “how much loan can I get from the bank?” or “What is the maximum housing loan in Singapore?”
Before you start looking around for a home, it is important to know a few things.
These include how to find the right mortgage calculator in Singapore, what the loan-to-value ratio means in Singapore, what is the maximum bank loan for HBD, among other things.
Before we delve into the main subject – how much you can borrow for a home loan – let’s start this discussion by defining some of the common terminologies that are used in line to borrowing for a home loan.
What Is The LTV Ratio?
The loan-to-value (LTV) ratio is a term used to refer to the total amount of money anyone can borrow for a home based on its value.
The ratio is currently set at 75%. This means, you can only borrow up to 75% of the total value of the home you plan to buy.
However, if the property in question is valued at a higher price than what is borrowed, the difference from this is called Cash Over Value (COV).
The maximum LTV for a bank loan is set at 75%, with the remaining 20% to be paid through the CPF Ordinary Account (OA), and cash. However, even with this, a minimum of 5% cash must be paid.
Even as this happens, 16 Dec 2021 marked the day when the maximum LTV for HDB Concessionary Loans saw a reduction of 5% from 90% to 85%, with the remaining 15% to be paid through the CPF OA, cash, or both.
It is also important to note that LTV ratios do not differ based on where you are buying a property or the type of property.
Instead, the LTV ratio depends on the lender. In other words, the amount of the LTV ratio depends on whether it is the bank you are getting the home loan from or a licensed money lender.
But how really does the LTV ratio work? Or, you may ask, how does a typical housing loan calculator in Singapore work?
How Does The LTV Ratio Work?
To understand how the LTV ratio works, let’s say you intend to purchase a HBD four-room condo valued at $500,000.
Because you know that your savings alone won’t be enough to buy the home, you go for a HDB resale loan or a bank loan for a condo.
But because the owner wants to make a profit or at least still earn $500,000, he adds $15,000 – and so quotes you $515,000. The additional $15,000 is what is referred to as the COV that we spoke of in the previous section.
Based on the HDB Concessionary Loan, you are eligible to borrow up to $425,000 to purchase the flat. This amount is the equivalent of 85% of $500,000.
Therefore, you need to pay $50,000, which is 10% of $500,000 – through your CPF OA or cash.
However, the remaining amount (COV of $25,000) will not be covered by the loan. You will be required to pay this COV in cash.
As to how much you can get from a bank, the situation is a bit different. A bank loan for a condo gives you slightly less. Even so, the HDB loan maximum loan tenure is still longer.
Going the bank way, you can only borrow a maximum of $375,000 for the same four-room flat. The amount is an equivalent of 75% of $500,000.
This will give you room to use an upward of $100,000 of your CPF OA, which is 20% of $500,000, to pay for the purchase.
You will then have to pay the remaining $40,000, which is equal to 5% of $500,000, plus COV, through cash.
Note: Under the regulations of the Monetary Authority of Singapore (MAS), it is not possible to take a bank loan to pay for a downpayment.
In addition: There is no guarantee of maximum LTV ratio. That means, although the maximum LTV ratio for a bank loan is 75%, and a HDB loan is 85%, both HDB and banks are not required under law to give you maximum LTV.
Instead, they will use their discretion to lower the LTV ratio if they deem it is appropriate to do so.
That explains why some HDB flats tend to give their clients lower LTV ratios than others do.
To get the best LTV ratio in the market, you need to take time to do your own research. However, there is still no guarantee that you will get the best LTV ratio.
Factors That Lower the LTV Ratio
As it were, the LTV ratio is not cast in stone. It can be higher or lower and a number of factors affect the outcome of your LTV ratio.
They include the HDB loan maximum loan tenure, your age, and credit score, among others.
Let’s look at some of the main factors.
Outstanding Home Loans
If you are still asking yourself “How much can I borrow for a home loan if I have an outstanding home loan?”, we have the answer to that.
The amount you borrow depends heavily on whether or not you have an outstanding home loan.
In that case, if you have an outstanding mortgage that you are still servicing, your second home loan will be capped at 45%.
You must pay half of the remaining 55% in cash and the other half through cash or via CPF OA funds.
If you have two other loans yet you want to take a third home loan, your LTV ratio will be at 35%.
Note: The above LTV ratios only refer to loan tenures that do not exceed 30 years. However, the LTV ratio is likely to be lower if the loan tenure is above 65 years or is 25 years for HDB.
Your Age and Loan Tenure
On 6 Jul 2018, a new law that adjusted the LTV ratio for private properties came into being.
According to the new law, the LTV ratio for loan tenures that exceed 30 years are to be capped at 55%. It is the same case if your age is 65 years and above.
For a HDB flat, the new law states that the LTV ratio will be capped at 55% if the loan tenure alone exceeds 25 years.
The LTV ratio will remain the same if the loan tenure and your age are beyond 65 years.
In other words, the law requires that in case you are 35 years of age at a time you are taking a loan, you should be able to repay it before you hit 65 years. That way, you have higher chances of enjoying a LTV ratio of 75%.
However, if you have outstanding loans, there are chances that your LTV ratio will fall to as low as 25%.
Location And Condition Of Property
The current state of the property, plus its location, play significant roles in determining your LTV ratio.
For instance, properties that are located abroad or are in “undesirable” locations are likely to attract a lower LTV ratio.
The law stipulates that if a property has major defects or is rundown, there are higher chances that lenders may offer lower LTVs.
While some people use this as a trick to get lower LTVs, there is no guarantee that those who do the property evaluation will decide so.
Your Credit Score
There is no doubt that during your HDB resale loan application, you might have used a housing loan calculator in Singapore or mortgage calculator to check your current credit score.
You could be labeled a credit risk if some lenders found out that you have a history of defaulting or not repaying your loans at all after checking your credit score.
In this case, your LTV ratio in Singapore will be calculated at a much lower limit than what the same lenders would give other people.
For instance, banks or lenders will calculate your LTV ratio at 65% while it gives others borrowers 75%.
However, you can prevent this from happening.
One of the best ways you can do so is by ensuring you repay all your loans in time. It is possible to do this whether you have outstanding home loans, personal loans or even credit card loans.
It is worth noting that even a simple thing such as an unpaid loan that you took 10 years ago can affect your current LTV ratio.
Remaining Lease On The Property
It is common practice in Singapore and across the region that for properties with a remaining lease of between 36 and 40 years, the LTV ratio for such properties is 60%.
However, there is also a good side to this. Chances are you can pay an upward of 15% of the property value using your CPF.
The only downside with having a lease on property is it becomes difficult to get a loan if the lease is 35 years and below.
Besides, the law does not permit anyone to use CPF funds on properties that have a lease of 30 years or below.
But you are not left without a choice. You can try a different route if you still want to succeed.
One way is to purchase the property using monthly repayments. Although this may prove to be a bit expensive, it may help salvage the situation.
If you choose this avenue, then you can proceed to negotiate a private contract with your seller through a law firm.
The other way is by attaining a special loan if you are a wealthy buyer.
Wealthy individuals have a high net worth, something that enables them to access private banks for loan facilitation.
How Loan Amount And Tenure Are Determined
Before they give you the amount you are asking, money lenders look at a few important things that determine the maximum bank loan for a HDB, bank loan for a condo, or even the maximum loan tenure.
The first consideration is age. Your age at the time you are applying for the loan matters a lot. It is common sense that you cannot expect to ask for a loan of say, $1billion at the age of 75 and expect the money lender to give it to you just like that.
People of ages between 20s and 30s can expect to get huge loans that extend up to 30 years ahead as opposed to those mentioned in the previous paragraph.
The second consideration is your income. Although some people argue that lenders do not care where you will get the money to repay the loan, it makes sense that they’ll give you a loan depending on how your income looks like.
The third consideration is the purpose. It is true that you are taking a home loan, but what if you want to buy a home, which you will later resell at a profit?
Although your intent might not be clear to your money lender, you can be sure that they will look into this.
If your money lender determines that your intent is to buy a home to resell it, then the amount may be higher but with a shorter tenure. The opposite is also true about taking a loan for a family home.
How To Get A HDB Loan
Are you interested in buying a HDB flat? Chances are you may qualify for getting a HDB loan. But how will you go about it? What factors will determine your getting the loan? What amount will you get?
The only way to find out if you are eligible for a HDB loan is by applying for one. You do this by writing a HDB Loan Eligibility letter (HLE).
Upon receiving your letter, HDB will point out and advise on various things including but not limited to:
- Your age
- Monthly income
- The amount you can borrow
- Current financial standing
- Monthly repayments
- Amount of cash needed
Note: Like many other loans, a HDB loan comes with strict conditions. There are certain eligibility criteria that have to be followed. We will mention some of those things in this section.
HDB Loan Vs Bank Loan
If you are torn between an HDB loan and a bank loan, then you must know that you are not alone.
Many people are usually stuck when it comes to making such a choice. However, you need to consider some of the key differences between the two – namely the downpayment, loan’s interest rate, and the flexibility to repay your loan.
How Much Can You Borrow?
The amount to borrow is dependent on many things.
One thing you must know is that the lender is happy when you borrow more. Yes, the higher the amount you borrow, the happier the lender is because that translates to higher interest and longer repayment plan, which adds to his job security.
But you do not need to be someone’s slave and the only way you can avoid this is by doing your math right. Therefore, there is no straight answer on how much you can borrow.
The amount you can borrow will depend on many things. These include:
- Your monthly/annual income inclusive of taxes
- The mortgage or loan term you are seeking
- Interest rate
- Monthly recurring debt
- The length of the repayment period
Other factors lenders look into to determine how much they can lend you (although many really don’t care as long as they are sure you can pay) include:
- Your debt-to-income ratio
- Loan-to-value ratio
- Credit score (we spoke of this earlier)
Buying a home is no doubt a weighty decision. The question of how much you can borrow is not an easy one. Nonetheless, we have given you a lot to think about.
At Credit Thirty3, we have helped many individuals like you to make the right decision on the amount of home loan to take, as well as how to expedite the loan, and organise flexible repayment plans.
As long as you have the plan and vision of owning your own home, all we want to worry about is how you can settle in your new home with whomever you love as we take care of the rest.
With CreditThirty3, you will still need to repay the loan of course – but under extremely flexible terms.
Find out more or apply for a loan with us now.