How Much Housing Loan Can I Take?

Written by 1AP Credit on November 16, 2022

Singaporeans take homeownership as a rite of passage. True to this, not everyone can save enough for a home, which is when one has to consider a housing loan.

Whether you are a first-time buyer or own a first or second mortgage, knowing how much you can afford for your housing loan in Singapore is vital.

If you are wondering, “how much housing loan can I take?”, keep in mind that buying a property is a long-term financial commitment. Thus, you need to take a loan that you can service in the long run, which is determined by the loan-to-value (LTV) ratio.

In this article, we’ll answer the burning questions among Singaporeans on housing loans, “How much housing loan can I take?”, “how much loan can I get from a bank?”, and others.

We will help you understand how the LTV ratio works in Singapore, as it determines how much lenders are willing to give out.

What Is The LTV Ratio?

The LTV ratio refers to the amount an individual can borrow for a housing loan.

In Singapore, you can’t borrow as much as you want. Your LTV limit depends on the home you want and your outstanding mortgages.

For instance, an LTV ratio of 75% is the maximum housing loan for banks. It means you can only borrow up to 75% of your purchase price or property value (whichever is lower).

Determining the amount you can borrow plays a part in the downpayment you have to fork out, which you have to pay using cash or your CPF Ordinary Account (OA) savings. The main reason for the LTV ratio is to safeguard homebuyers from over-borrowing.

Interest rates can change at any time. Luckily, homeowners can opt for loan refinancing to get better rates from other lenders.

What To Know About The Maximum LTV Ratio

Some may ask, “What is a good LTV ratio?”

The LTV ratio determines the maximum funds you can borrow from a bank or HDB for your housing loan. Moreover, your LTV ratio differs depending on your housing loan lender.

For instance, before you commit to getting a bank loan for a condo based on the LTV ratio, you need to set aside some cash or CPF savings for your property purchase.

So what is the maximum housing loan in Singapore? The LTV ratio of 75% for banks applies to your first loan or if there are no other loans pending.

The remaining 25% is divided into two parts, 5% to be paid in cash and the remaining 20% to come from cash or your CPF OA savings.

This ratio differs from the maximum loan for HDB, which is 80% of the property value as of 30 Sep 2022. You can use cash, your CPF OA savings, or both for the downpayment.

Do note that there is no law in Singapore that states that banks or HDB must give you the maximum LTV – as such, they can give you a lower LTV ratio for a housing loan.

How To Lower Your LTV Ratio

Another common question from borrowers is, “Do lenders want a high or low LTV?”

Lowering your LTV ratio is vital as this helps reduce your costs over the life of the loan. There are two ways to lower your LTV ratio:

  1. Save up more to make a big downpayment on your home loan
  2. Make your cost more affordable by choosing a less expensive property

So to sum it up, your LTV ratio matters. Lenders take a lower LTV to mean a less risky loan.

What Happens When The LTV Ratio Is Lowered

Here are a few things that may occur when your LTV ratio is lowered:

  • More cash required for your downpayment: A lower LTV ratio means you can borrow less. So you will have to fork out a more significant downpayment in cash or CPF savings for the property purchase.
  • More equity: You will also have more equity in your home. With more equity in your home, you keep safe from negative equity. You will also have more home equity to tap into and a good chance of borrowing money in future.
  • Lower mortgage payment: With a low LTV ratio, you increase your chances of securing a better home mortgage.

HDB Loan Vs Bank Loan

If you’re trying to determine if a bank loan or HDB loan is better, here are some crucial differences between the two:

1. Downpayment

The downpayment for a bank loan depends on the number of property loans you have, while a HDB loan has a 20% upfront downpayment of your purchase price with cash and/or CPF.

2. Loan Tenure

A bank loan tenure is capped at 30 years for HDB flats and 35 years for private properties, while HDB is up to 25 years.

3. Interest Rates

If you get a bank loan, you can choose a fixed or floating interest rate, while the interest rate for a HDB loan is 0.1% above the prevailing CPF rate, which is reviewed quarterly.

4. Refinancing

You can refinance your HDB housing loan to a bank loan since you are not tied by a lock-in period. However, it’s not possible to refinance your bank loan to a HDB housing loan.

5. Fees

Two fees may apply to bank loan borrowers: an early repayment or a refinance within a lock-in period. There is no penalty to pay to HDB for early repayment or paying more than your monthly installments.

The only common factor between HDB loans and bank loans for a HDB flat or executive condominium (EC) is the Mortgage Servicing Ratio (MSR). The MSR is capped at 30% of your gross monthly income.

How Much Mortgage Loan Can You Afford?

The question of “how much housing loan can I take?” concerns your affordability.

You should only take a loan if you can afford it, given your financial circumstances. Again, it must be based on what lenders are willing to give you based on factors such as government regulations and remaining leases on your property, among others.

Banks and HDB loans adhere to three key guidelines as follows:

  • The LTV ratio measures the size of your loan concerning your home value.
  • The Total Debt Servicing Ratio (TDSR) determines all your monthly debt repayments.
  • The MSR measures your gross monthly income that will service your housing loan.

To know how much you can afford for your HDB loan, check your eligibility by applying for an HDB Loan Eligibility (HLE) letter.

There are two significant factors that determine how much you can afford.

  • The downpayment: You need to have some cash and CPF OA savings that you have saved for your home downpayment. The figure will significantly affect how much you will afford.
  • Monthly loan installments: If you take a housing loan with a long tenure, your monthly installments will be less. However, this will be more expensive in the long run as you will pay more interest.

What you will pay for your monthly installments will depend on what you have borrowed, the interest rate, and the loan tenure.

  • Ongoing expenses: These include hikes in interest rates, property taxes, insurance, or maintenance costs. You must set some money aside as you can’t use your CPF savings to pay for these costs.

Other Factors To Consider

Apart from the above, most lenders take a step further to decide how much to lend you. For instance, banks must consider the number of your existing loans and balances.

They will also look at your property condition and location. Other factors are your age, loan tenure, and credit score.

Are You Looking Forward To Owning A Home?

The process of taking a housing loan in Singapore can be overwhelming. You need appropriate knowledge to avoid getting into more debt.

At licensed money lender 1AP Credit, we help you find the best deal for your home loan.

We will answer the most common question from most of our clients, “how much housing loan can I take?” If you need to apply for a loan, we are here to help you enjoy a smooth process. Contact us now.

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