Have you found a private property or HDB flat where you can settle your family, but you do not have enough capital? You can source a home loan to meet the buying price of your dream home.
However, before you take out the loan, it is important to ask yourself “how much housing loan can I get?”
The amount of mortgage you can qualify for is influenced by several factors. It depends on the amount you have already saved to buy the property and the lender you approach.
Keep reading this article to learn how much you can afford for your home loan, what affects the HDB loan amount you can get, and much more.
Homeownership in Singapore is an expensive enterprise, and highly regarded as a rite of passage. Still, most Singaporeans are determined to get a place they can call home.
As you plan to get a home, it is essential to buy a property that is within your means. In other words, buy a home that your finances can afford.
Here are some key things that can help you to determine the amount of loan you can afford:
This refers to your first payment during a housing transaction. Usually, it is up to 25% of the purchase price of the property you want to buy. It is the first thing you should consider if you are wondering “how much can I borrow for a home loan?”
You can pay the downpayment using the cash you have on hand such as your savings, your CPF Ordinary Account (OA) savings, and net proceeds from the sales of your old property.
Apart from the downpayment, some other charges also apply for your first housing payment. They include legal costs, option fees, renovation costs, agent’s commission fees, and other miscellaneous expenses. You can pay them using your savings.
After your lender grants you the mortgage, you will be making monthly installments to repay the loan. This payment includes the interest and principal repayments.
The monthly installment depends on your borrowed loan amount, the maximum HDB loan tenure, interest rate, and interest being computed.
You can consider taking a housing loan with long tenure to reduce the monthly payment amount. However, this will mean you will pay more interest overall. You can ask your lender to give you a repayment schedule to avoid defaulting.
Another factor that can help you determine the home loan amount you can afford is the ongoing costs involved. For example, there are monthly expenses such as fire and mortgage insurance, management services, property taxes, and conservancy services.
Also, if you take a loan with a floating rate, the interest rates may be higher in future. This may require you to dip into your savings.
Apart from knowing how much home loan you can afford, you can calculate the amount you need. This will help you to answer the question “how much loan can I get from the bank?”
The calculation is straightforward because you only need to know the amount you have at hand plus the buying price of the property you want.
You can determine how much you already have by calculating your:
After calculating the amount you have at your disposal, you can subtract this figure from the total price of buying the property. This will help you to determine how much you need to borrow to cover the remaining cost.
However, the maximum bank loan for HDB you can take out is influenced by several factors, as discussed below.
The loan-to-value (LTV) ratio shows how much you can borrow to finance your home loan. For example, if the LTV ratio is 80%, you can only borrow up to 80% of the property’s value.
Sometimes, property sellers place a higher price on a home than its value. The price difference is called the Cash Over Valuation (COV).
As you approach a lender to ask “how much housing loan can I get?”, keep in mind that there is a maximum amount set for borrowing as follows:
The maximum LTV for bank loans is 75%. Therefore, you can take out the 75% and cover part of the remaining amount (20%) with your cash or CPF OA savings. The remaining 5% must be cleared in cash.
Instead of a bank home loan, you can go for a HDB loan. The maximum LTV ratio of this loan type was reduced from 90% to 85% as of 16 Dec 2021, and to 80% on 30 Sep 2022.
If you qualify for it, you can pay the remaining 20% with your CPF OA savings, cash savings, or both.
If you cannot meet the bank and HDB loan eligibility criteria, you can still find a solution from legal money lenders in Singapore. They provide various mortgage loan packages to suit your needs.
But is it safe to borrow from licensed money lenders? Yes, it is. The Ministry of Law regulates them under the provided moneylending guidelines called the Moneylenders Act.
Suppose you want to buy a HDB flat worth $500,000. However, the seller has quoted the price as $515,000. The difference between the property’s value and the quoted price is $15,000, referred to as COV.
In this case, the LTV will apply depending on which loan you borrow, as follows:
If you choose to take out a bank loan, the maximum LTV you can qualify for is 75%. That means you can get $375,000.
Then you can use your CPF OA savings to cover 20% ($100,000) and settle the remaining 5% ($25,000) plus the COV ($15,000) with your cash savings.
If you go for a HDB loan, the LTV will be higher, which is 80%. Therefore, you can get a loan worth up to $400,000.
Get $100,000 from your CPF OA savings or cash to clear the remaining 20%. Finally, you should pay the COV ($15,000) in cash to clear the debt.
Banks and HDB in Singapore have lending guidelines that determine the housing loan amount you can qualify for.
Apart from the LTV ratio, they also look into the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR).
So even as you ask your lenders “how much can I loan from a bank?”, understand that these ratios can have a significant impact.
Let’s find out what MSR and TDSR mean.
The MSR determines the amount of your gross monthly income used to service your home loan for HDB properties. The maximum MSR ratio for bank loans is 30%.
You can find the MSR by dividing your monthly mortgage payment by your gross monthly income, that is: MSR = monthly mortgage repayment/ gross monthly income.
Therefore, if you earn $6,000 per month, the maximum you should pay for your home loan is 30% of $6,000, which is $2,000 per month.
The MSR includes all your home loan obligations. Therefore, if you already have a home loan for which you are paying $1,000 per month, it should be included in the 30%.
For instance, if you earn $6,000 per month, you should pay a maximum of 30% of your monthly salary for your mortgages, which is $2,000. Hence, the $1,000 of your first home loan will be deducted to find the monthly mortgage repayment for your new loan.
Also, if you have a spouse, their income will be included in the MSR. For example, if you both earn $6,000 per month, your monthly home loan repayment will be $3,600, which is 30% of your total earnings ($12,000).
The TDSR is a proportion of all your monthly debt repayments from your gross monthly income. It considers every loan, such as car and home loans, and credit card debts you owe lenders.
The maximum TDSR is 55% of your monthly income. This means that the maximum bank loan for HDB that you can take out should not result in monthly loan payments that exceed 55% of your monthly earnings.
You can borrow as much as 75% of your property’s value for a bank home loan or 80% for an HDB loan.
But is this amount always guaranteed? No, it isn’t. This is because several factors influence your LTV ratio such as:
When you approach a bank for a mortgage, it will refer to your credit report to find your credit score. This is one of the criteria used to determine how much you can qualify for.
As you think “how much mortgage loan can I get?”, do consider your credit rating. This is because a history of non-paid loans or late payments lowers your LTV ratio. For example, it can drop from 75% to 60%.
So ensure you build your credit rating by repaying your home loan on time. This is to avoid lowering your LTV when you need a mortgage.
If the loan tenure is more than 30 years or the loan term plus your age extends beyond 65, the LTV is capped at 55%.
On the other hand, if the maximum HDB loan tenure exceeds 25 years or the loan tenure plus your age is more than 65, the same LTV ratio applies.
Therefore, if you take a home loan at age 35, you should repay it in full before you hit 65 to enjoy the maximum LTV.
Do you have any unpaid home loans? If you have one or several, they will affect your LTV ratio.
If you have one outstanding home loan and want to take out a second one, you can only qualify for a 45% HDB loan amount. You can get the remaining 55% from other sources, but half must be paid in cash.
If you have two home loans and want a third one, your LTV limit will be 35%.
Note that these LTV ratios apply to home loans with a tenure of 30 years or less, or 25 years or less for HDB loans. If the term exceeds 30 years or an age limit of 65, the LTV can drop lower.
Another key thing to consider to answer the question “how much housing loan can I take?” is the location and the state of your property.
Does it have major defects that can risk the lives of those living there? If it does, the LTV will drop. Also, if it is located outside Singapore or in an undesirable location, the LTV may be lower.
How many years are left for the property to be on the lease? If it has 36 to 40 years left, the maximum LTV is 60%. You can top up the remaining 15% of the property’s price with your CPF OA savings.
However, if the property has 35 years or less left on its lease, it is usually not possible to get a home loan. Besides, using your CPF savings on properties with 30 years or less on lease is not allowed.
The question “how much housing loan can I get?” is essential to ponder before you apply for a housing loan. It allows you to determine how much you can afford depending on your financial capability.
Apart from your finances, the lender also influences how much you can borrow. If you want a bank home loan, you can get up to 75% of the property’s value, while for a HDB loan, you can get a maximum of 80%.
If you do not qualify for either, you can find a legal money lender to give you the loan.
Note that the maximum bank loan for HDB is not guaranteed. Your LTV limit can be lower due to your age and maximum HDB loan tenure, outstanding home loans, credit score, and remaining lease period.
If you have failed to meet the bank criteria for a home loan and are looking for a backup, you can get in touch with 1AP Capital.