How To Apply For A Renovation Loan In Singapore

Written by 1AP Credit on October 12, 2022

Congratulations on finally getting the keys to your new home – an achievement that most Singaporeans wish for at some point in life.

However, this is only the beginning as you need to move to the next step, the renovation work. Home renovation can be an exciting process as we want to live in a home that looks amazing.

Moreover, we feel great when the guests drop by, and shower praises on your décor.

In short, everyone wants a dream home. But if you’re a first-time homeowner, you may have a hard time and feel the pinch.

This is because you’ve probably used your savings on the downpayment when purchasing your home. Therefore, funding a renovation project can prove a challenge.

In such an instance, a home renovation loan in Singapore comes in handy.

This article offers a comprehensive guide to home renovation loans in Singapore to help you understand what a renovation loan in Singapore is.

Find out how to apply for a renovation loan and all the nitty-gritty details about a furnishing loan in Singapore.

What Is A Renovation Loan?

As its name suggests, a renovation loan is designed to finance home renovations for existing and new homes. Let’s look at how it works.

After the home renovation loan is approved, an insurance premium of 1% and handling charge of 1% of the approved loan amount are payable and deducted from the approved amount.

After this, the loan is disbursed to the contractors through a cashier’s order (s).

The maximum number of issued cashier’s orders is four, and any extra cashier’s order after that will incur a fee of $5.

This fee will be deducted from the assigned loan servicing account. You may also incur additional fees in case of prepayment, cancellation, and late payment as follows:

  • Prepayment fee: 1% of the outstanding loan amount
  • Cancellation fee: 1% of the approved loan amount
  • Late payment fee: $35 for every month or portion thereof during which any interest or installment is unpaid

Therefore, it is important to choose an affordable loan package that best suits your needs to ensure you can repay on time to avoid these charges.

If you get your renovation loan from a bank, there will be site visits after the renovation loan approval and disbursement to ensure that you use it for the outlined renovation project in the quotation.

What To Consider Before Getting A Renovation Loan

Before taking a home renovation loan, it’s important to first understand the eligibility criteria. You must:

  • Have a fair credit score
  • Earn at least $24,000 annually
  • Be between 21 to 55 years old
  • Be a Singaporean or a permanent resident
  • Have a joint applicant who is a spouse, parent, sibling, child
  • Have a main applicant who is employed
  • Have a main or joint applicant who is the proprietor of the property being renovated

After confirming you’re eligible and you’re sure you want to take a renovation loan, several factors must be considered.

It’s only natural that you may feel tempted to borrow money to complete renovating your dream home.

But it’s important to be careful as home renovation costs can snowball quickly. Besides, you have other options when it comes to funding these costs.

Interest costs

Borrowing a significant sum to fund a large-scale project such as home renovation is not always the best idea.

This is especially if the property is already functional and your renovation is for cosmetic purposes.

This can be explained by the fact that renovation projects tend to have a reduced marginal return as the undertaking becomes more expensive.

Let’s put this into perspective.

Assume you can do either a $30,000 or a $50,000 home improvement project.

If you intend to cover 100% of each cost with a loan, the entire interest cost will be $2,269 and $3,782, respectively.

Notice the difference of $1,513 in an incremental cost of interest.

In this case, it’s crucial to determine whether a $50,000 home can recover more profit than a $30,000 one to validate the $1,500 difference.

This can be explained by the fact that as high-end fixtures and features become more personalised (e.g. expensive items and built-in dishwashers), some prospective buyers might not value them.

However, a prospective buyer would pay more than the cost of the renovation project if the work done was at least good – if not better than what they’d have done.

Therefore, when getting a pricey renovation loan in Singapore, you need to remember how the increased debt cost could impact your net position because luxury projects tend to produce fewer returns.

Personal Loans Can Be Double-Edged Swords

It’s advisable to go for a renovation loan rather than a personal loan because the former is 5-7% cheaper in interest rates.

We will look at the differences later.

However, additional funding from your personal loan can come in handy when doing such a large project if you require more than the maximum you can get from a renovation loan.

In such instances, you should be extra careful about the higher interest fees you’ll incur.

Generally, personal loans are not ideal for home renovation projects, especially if you can access home renovation loans in Singapore from a licensed money lender or bank.

Only take this risk if the project’s profitability justifies it. Or opt for smaller projects as they can be more economically feasible.

Can The Repayment Obligation Sustain Your Budget?

When deciding and assessing the burden of your home renovation loan, you should factor in your current liabilities and how taking out extra loans can affect your day-to-day life.

In a nutshell, a home renovation loan requires a monthly payment ranging from $300 to $1,000, depending on the loan term.

This accounts for 3-15% of the financial burden of an average Singaporean household budget. While this may seem insignificant, financial obligations can snowball and eat into a massive part of your monthly income.

It is, therefore, important to understand the Total Debt Servicing Ratio (TDSR) rule enforced by the Monetary Authority of Singapore.

The rule states that your household liabilities, including student loans, mortgage, renovation loans, and the like, must not surpass 55% of the monthly income.

Therefore, if taking out an extra home furnishing loan will push you towards this limit, you should reconsider borrowing, even if the project will yield significant returns.

How To Choose A Renovation Loan

There are many home renovation loan providers out there, including reputable financial institutions such as banks, licensed money lenders, and even some loan sharks.

It’s, therefore, important to know how to choose the best home renovation loan.

Below are some of the factors to consider when choosing a home furnishing loan in Singapore:

Interest Rates

The first thing a borrower considers when taking out a loan is the charges on interest.

It’s right to think so, as the interest rates can amount to a few extra thousand on top of the loan principal.

It’s crucial to note that the monthly interest rate might not always be equal to the interest rate. Banks sometimes give promotions such as processing fee waivers or reduced interest rates over a certain period, and other parks to attract prospective borrowers.

However, doing your calculations is advisable to ensure the loan best suits your needs. There are many home loan calculators that you can find online to guide you through this decision.

Other Charges And Fees

When you’re applying for a home loan, other fees will be involved.

These include processing fees, standard fees, cancellation fees, administration fees, late payment fees, and insurance fees.

The processing fees are pegged to the approved loan amount, which is usually 1%.

So when shopping for a furnishing loan, it’s important to understand these fees and charges.

Loan Quantum

Most banks also have a set minimum loan amount that you can take, aside from the maximum loan amount previously mentioned.

You might have done your due diligence to determine the exact loan amount you need for your renovation works.

However, it’s crucial to understand the question “how much renovation loan can I get?”

In Singapore, home loans available to borrowers are capped at six times the borrower’s monthly income, or $30,000, whichever is lower.

Besides, you need to have a minimum of $24,000 annual salary to apply and qualify for a reno loan.

How To Apply For A Renovation Loan

Choosing the best home renovation loan provider can be overwhelming with so many loan providers.

Besides, much paperwork will also be required before you’re eligible for a renovation loan.

If you’re applying with a bank, ensure you have an existing account with the bank.

After this, follow the following steps:

Step 1: Prepare the required documents, which include:

  • A digital or scanned quotation signed by the applicant (s) and contractor
  • Proof of income documents
  • MCST or HDB renovation applicant
  • Proof of home ownership

Step 2: Visit the lender’s website, launch the online furnishing loan application form, and submit your application with the mentioned documents.

Note that you’ll need to authenticate yourself through:

  • ATM, credit, or debit card pin and number
  • Your digibank user Pin and ID

Provide your NRIC and the current digital payslips if you’re a partial commission-based earner or salaried.

If you’re self-employed or a solely commission-based earner, you’ll need to provide a copy of your NRIC and your latest NOA, or three months’ commission statements.

Differences Between Renovation Loan And Personal Loan

While a renovation loan is a popular option, some people prefer personal loans to renovate their homes and restore them to top condition.

The main similarity between the two loans in Singapore is that they’re both unsecured.

This means that neither loan requires you to put up collateral or assets.

Therefore, your asset, such as a car or house, won’t be sold to recover the funds in case you cannot repay.

Another similarity is that financial institutions or money lenders check your creditworthiness to approve or decline the loan.

Therefore, it’s important to have a good if not excellent credit rating to help in fast approval and lower interest rates.

The main difference is that, unlike a personal loan, in which you can do anything with the borrowed funds, a renovation loan has some limitations only tied to repairs.

The lender will only approve the funds for the renovation works.

The table below compares the two loans side by side for easier comparison:

 Personal LoansRenovation Loans
Loan AmountUp to $250,000Up to $30,000
Loan UseFlexible and can be used for expensive purchases, education, home renovations, etc.It can only be used for home repairs or renovations
Interest RateStarts from less than 4% p.a.Starts from less than 3% p.a.
Loan Eligibility21-65 years with a minimum income of $20,000You must own the home or be a family member.
Disbursement SpeedFrom 15 minutesDepends on the bank and the borrower's circumstances
Repayment DurationOne to five yearsOne to five years

What You Can Use A Renovation Loan For

A reno loan has some restrictions imposed on its use. You can use it for:

  • Built-in cabinets
  • Wiring and electrical works
  • Structural alterations
  • Redecorating or painting works such as wallpapers
  • External projects within the home’s compound such as the balcony or ceiling
  • Basic bathroom fittings
  • Tiling and flooring
  • Solar panels installation

On the other hand, a renovation loan in Singapore cannot be used for:

  • Air-conditioning
  • Furnishings
  • Washing machine
  • Refrigerator
  • Home entertainment systems
  • Curtains
  • Household appliances

Alternatives To Renovation Loans In Singapore

There are several options if you’re looking for alternatives to personal and home improvement loans due to eligibility.

These include:

  • Equity line of credit
  • Energy-efficient mortgage programme
  • Cash-out refinancing

Now that you know how to apply for a renovation loan, you can comfortably make an informed decision.

With 1A Capital, you’re sure to get the best home renovation loan at the best rates and fast disbursement.

Our experienced home loan advisors will walk you through every step of the way and grant you a renovation loan tailored to your unique needs.

Get in touch with us today or apply for a renovation loan now.

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