How Much Can You Borrow For Your Home Loan?

When the day finally arrives for you to stake a claim on your corner of the world and buy a property, one of the biggest decisions of your life, you will probably ask yourself a question: How much can I borrow for home loan?

How Loan Amount And Tenure Are Determined

Lenders consider a few factors when determining the loan amount to offer you such as your:

Age

Younger people in Singapore have access to longer tenures. The HDB loan maximum loan tenure is 30 years for HDB flats. Private properties allow you to set a term up to 35 years.

Note that longer terms decrease the maximum amount you can borrow to just 55% of that property’s value.

This applies to:

HDB apartments – If your tenure is over 25 years
Private properties – If your tenure is over 30 years

Your Income And Previous Loans

Your earnings and previous financial commitments determine the maximum housing loan in Singapore. Your home loan installment shouldn’t be a burden on your monthly budget.

If it is, you may default on your loan, which presents a big risk to the lender.

Total Debt Servicing Ratio (TDSR)

To prevent overleveraging, this ratio defines the proportion of your debt compared to your gross income. In other words, it’s the ratio of your current loan installments compared to your earnings. This limit is set at 55% in Singapore, which means you should not pay more than 55% of your gross monthly income towards your loan installments.

A lower monthly installment translates into a lower maximum loan amount.

Mortgage Servicing Ratio (MSR)

The MSR influences both the maximum bank loan for HDB and the maximum HDB loan. It only applies to HDB properties.

It is defined by the ratio between your mortgage loan installments over your gross monthly income.

The current MSR in Singapore is 30%. So your HDB loan installment can’t be over 30% of your gross monthly earnings. Therefore, a lower income translates into lower installments.

Amount Of Downpayment

You can access a larger loan amount if you have a larger downpayment. Check if you have cash in your savings or deposit accounts. If you’re selling a property, you can use the sales proceeds as a downpayment or as a guarantee for a larger loan.

Other Costs To Factor In

The factors above influence how much you can borrow for your home loan. You can also use a housing loan calculator, but you should only borrow what you can afford to repay.

There are also other costs to consider.

We have split the costs into three categories:

Upfront Costs

Here are a few to consider:

• Option fee
• Downpayment
• Stamp duty
• Legal cost
• Agent’s commission
• Renovation costs

Monthly Installments

The monthly installment is the amount you pay every month towards your loan. This installment is made up of two parts – interest, and a payment that goes towards your principal amount.

If you can afford a lower installment, your tenure will be longer. So while you can technically get the property of your dreams at a lower price, you will be debt-free later and pay more in interest over a longer tenure.

Additional Ongoing Costs

• Taxes
• Insurance
• Conservancy and management service fees
• Increase in your interest rate for floating-rate loans

What Is The LTV Ratio?

The LTV ratio is a reference to the ratio between the amount that is borrowed for a loan and the value of the relevant property.

To calculate the LTV, divide the borrowed amount by the appraised property value. The answer is then expressed as a percentage.

To provide a basic example, if the value of a property is $800,000 and the loan amount is $600,000, then the LTV in this case is 75%.

The LTV ratio in Singapore is up to 75% of the property value or purchase price for bank loans, and up to 80% of the property value or purchase price for HDB loans.

The LTV ratio is a vital tool for lenders to assess the amount of risk they will be exposed to when considering whether or not to approve a loan.

The higher the LTV ratio, the greater the risk for the lender.

The original question we considered was, “how much can I borrow for home loan in Singapore?” If the LTV ratio that you have been offered is 80%, then you can borrow up to 80% of the purchase price or property value, depending on which of the two is lower.

How Does The LTV Ratio Work?

The LTV ratio is a safety mechanism put in place by the Singapore government. It limits the amount of finance that borrowers can access when they are trying to get a loan.

The concept is to keep the loan amount to a level that is sensible and that you can realistically repay, as opposed to an amount that may lead to a default on the loan.

The importance of the LTV ratio is that it is used to decide how much you can borrow; and consequently, how much upfront cash or savings from your CPF OA you will have to dip into to finance the downpayment on your property.

A lower LTV ratio is important because it will improve your chances of getting an attractive mortgage.

This is because if your LTV is low, then potential lenders will view your application for a mortgage as being less of a risk. By contrast, if your LTV increases, your lender will be faced with the risk of potential losses.

Therefore, when considering how much can I borrow for home loan in Singapore, understanding how the LTV ratio works is critical.

Factors That Lower The LTV Ratio

As was the case in the 2008 financial crisis, if there is a significant fall in housing prices, this will likely push your LTV higher.

There are several other factors that will affect the LTV you can get:

• Your personal credit score. If you’ve made a late repayment on any of your previous loans, this will be identified by the lender during the credit history check.
• An outstanding home loan. If you have another outstanding property debt, the LTV ratio on your second home loan will have a 45% cap. If you have two outstanding property loans, then the LTV ratio cap will be 35%.
• The relationship between your age and the loan tenure. The above LTV caps are also influenced by you age and the loan tenure. If the loan tenure is more than 30 years, or the tenure and your age is more than 65 years, the LTV ratio cap will be 55%. In the case of a HDB flat, the 55% cap will come into play on a tenure exceeding 25 years.
• The property location and condition. If the property is situated in a poor location, or is in a bad condition, that will lower the LTV ratio.
• The amount of downpayment you pay. The higher your downpayment, the lower your LTV ratio.

How Much Can You Borrow?

So what is the maximum housing loan in Singapore that you can get? It varies based on borrowers’ finances and circumstances.

When you consider the question how much can I borrow for home loan in Singapore from a bank or legal money lender, there are various criteria that influence the situation.

These include your age, credit score, your level of income, and any outstanding loans you may have.

With regard to your level of income, banks and licensed money lenders in Singapore also calculate the ratio of your income to your debt. This is called the Total Debt Servicing Ratio (TDSR). In Singapore, this should not exceed 55%.

If you want to buy a HDB flat, your Mortgage Servicing Ratio (MSR) will be calculated by your lender. This refers to the proportion of your monthly pay that you spend on mortgages, and applies to HDB flats and executive condos. The MSR must not exceed 30%.

Ultimately, the maximum amount for a housing loan in Singapore that you can borrow is based on the MSR (for a HDB property), the TDSR, your credit score, the loan tenure, and the number of outstanding home loans you have.

If you meet the conditions for a loan in Singapore, you may borrow 75% of the price of the property for a bank loan, while a HDB loan can reach a maximum of 80%. Note that you are not guaranteed to get the maximum LTV.

A good course of action is to visit the website of a respected licensed money lender, such as 1AP Capital, and use the loan planning tools on their site to get a ballpark figure.

How To Get A HDB Loan

The Housing & Development Board is the public housing authority of Singapore and has been responsible for the construction of in excess of one million homes since it was created. According to the HDB website, HDB flats house approximately 80% of the resident population.

If you’re now wondering, “How much can I be loaned from the HDB?” or “What’s the maximum bank loan for HDB properties?” this section will outline the eligibility criteria.

To get a HDB loan, at least one of the property buyers must be a citizen of Singapore. Secondly, there is a monthly income ceiling for each household that must not be exceeded – $7,000, $14,000 and $21,000 for singles, families, and extended families respectively.

Finally, all of the applicants must neither own or partly own any private property intended for residence – either locally or internationally.

Get The Right Home Loan For Your Needs

You can use a mortgage calculator or a housing loan calculator for Singapore to help you.

But if you are still bewildered, feel free to reach out to our team at 1AP Capital.

1AP Capital is a trusted licensed money lender in Singapore, having assisted thousands of Singaporeans achieve their financial goals safely and securely.

If you asking “how much can I borrow for home loan in Singapore?”, then we would be delighted to offer you the benefits of our professional advice and experience to help you get the right loan for your dream property.

Reach out to us now or apply for a loan today.