Many people in Singapore are not aware of the existence of a financial tool called a renovation loan. Whenever they have had to renovate their homes, most homeowners have had to do it out of pocket, which can get quite expensive.
But with a renovation loan available to you, you could borrow some money, renovate your home, and repay it in small bits, though with some interest attached.
In this article, we inform you about the existence of home renovation loansin Singapore and answer the natural question that follows: “how does renovation loan work?”
We then tell you of the steps to take to apply for the loan. So read on to know more about renovation loans offered in Singapore
What Is A Renovation Loan?
A home renovation loan is a loan for which homeowners apply to get the money they need to finance the remodeling or refurbishing of their homes through repairs and fittings.
This loan differs from a mortgage or a home loan and is taken out for a single purpose: home renovation works. In Singapore, you can get this loan from a bank, licensed money lender, or other financial institution.
The home renovation loan is unsecured, meaning that you will not be asked to provide any collateral as security and, by extension, will not risk losing your property.
Typically, it has a tenure of one to five years, and its interest rates are much lower than those of personal loansora credit cards. The maximum amount you can receive is $30,000 or six times your annual salary, whichever is lower.
When making your application, lenders require that you be specific about the intended renovation works you intend to carry out with the money before they can approve your loan. Indicate whether you are getting new furniture, changing appliances, painting, or just getting contemporary decor.
You could also be redoing your plumbing system, changing the bathroom fittings, fixing your roofing, restoring dilapidated flooring, expanding the house, repainting your house, redoing the electrical system or fencing, or whichever other home improvements you wish to make.
But note that each lender offers a unique amount for home renovations so be sure to shop around first, comparing different offers.
Once your loan application is approved, the lender pays out the money as a cashier’s order directly to the contractor or the interior designer.
If the lender is disbursing the loan to several suppliers or in instalments, the transactions may attract additional levy fees. So, be diligent when going through the terms and conditions of your loan taking note of any handling, admin, or processing fees charged to the loan.
Lenders quote the renovation loan at a monthly rest rate, and they calculate the interest on the loan’s outstanding balance. But they quote personal loans at a flat rate and calculate the interest rates based on the initial principal loan amount.
A few days after the disbursement, the lender starts making site visits to your location to ensure that the money borrowed is being used for the renovation projects indicated in the quotation.
What You Need To Know About Renovation Loans In Singapore
Before we answer the question “how does renovation loan work,” it’s crucial that we inform you about the unique requirements the Singapore loan market has for renovation loan borrowers.
Here are the standard qualifying criteria you would find in Singapore, whichever lender you approach:
1. You Must Own The Property
A renovation loan can only be offered to a property owner. It doesn’t matter what you want to renovate, whether an apartment, bungalow, or condominium. Whichever type of residential property you wish to renovate, you must be its eowner and provide proof of ownership.
2. You Must Be A Resident
Singaporeans generally have access to renovation loans so long as they qualify for them.
Permanent residents can also own property in Singapore, and most lenders would be happy to offer them loans. But all borrowers must be of ages 21-61 years.
3. You Must Make The Minimum Annual Income
Most lenders in Singapore require that homeowners have a $24,000 minimum annual income before they can offer renovation loans.
But there are also instances where lenders will fix an upper limit of up to $30,000.
4. You Must Have A Good Credit Score
Lenders go by your credit rating to determine your reliability in paying your debts. So, if you have a low credit score, the lender might not be confident in your ability to repay and will charge you a high interest rate.
As such, in preparation for applying for a loan, take some time, say in the months prior, to improve your credit scoring to increase your chances of getting more favourable deals.
Deciding on the Amount of Money To Apply For
When looking for a renovation loan in Singapore, it’s also important to remember that the amount you apply for should go along with the aesthetic you are trying to achieve.
a. If You Are Planning To Sell
If you hope to sell the property in the near future, you may not want to pour too much of your resources into it. But, it still makes sense to conduct the renovations because if you or others still live there, you would still benefit from the changes.
b. If You Plan on Living There
If you plan on living in the home forever, refurbish or decorate it as the place you will live in for life. The cost of the renovations for this change might be significantly high.
Still, if you find a contractor or interior designer with excellent after-sales service, you will get the qualities you desire at an incredibly low price.
How To Apply for a Renovation Loan in Singapore
After you have planned out what to renovate, estimate the amount you need to complete the job well. A Renovation Loan Calculator may help get a rough estimate, and after that, take the following five steps to apply for the renovation loan:
1. Check To See If You Qualify
Check yourself against the following qualifying criteria to see if you qualify for a renovation loan in Singapore:
- Be the property owner to be the primary loan applicant
- Be a Singaporean or a permanent resident
- Be of ages 21-55 years
- Earn at least $24,000 annually
- Have a decent credit score
- If having a joint applicant, they must be family-related and employed
2. Get A Quotation
After establishing that you qualify for a home renovation loan, start contacting the particular contractors or interior designers you need. Request them to give you quotes and when you get an excellent offer, use it to apply for the amount required for the renovation.
3. Check Your Credit Score
Since home renovation loans in Singapore are primarily unsecured, lenders will peg their decision on whether to lend money to you on your credit history.
For this reason, you must check your credit score and history to ensure that it’s okay before applying.
As you go through your history, be careful to notice if there are any errors. Since the report is compiled by credit reference agencies that source their data from third parties, it is not uncommon to find some mistakes.
There could be some omissions and wrong data entry, so it helps to check the report thoroughly to identify any such mishappenings. If you note any, request the credit reference agency to make the corrections needed on your statement, and to recalculate your credit score.
4. Select A Lender
Lenders have different interest offerings for home renovation loans. Some offer a flat rate, while others give a monthly rest rate. A flat rate is calculated upon the entire principal amount lent to you. In contrast, the monthly rest interest rate is calculated based on the outstanding loan amount following your monthly repayments.
On the surface, flat-rate loans appear to be more affordable. But, with consistent upfront repayments, the interest charged on a monthly rest rate effectively goes down, and you continually pay less interest. Eventually, the monthly rest rate loan becomes cheaper.
5. Assemble Your Documents
The following documents are mandatory and must be produced as you make your application:
- Proof of ownership for the property you are renovating
- Evidence of your relationship with the joint applicant (for joint applications)
- CPF contribution statements for the last 12 months or your last three months’ pay slips
- A copy of your original NRIC
- Latest IRAS Assessment Notice
The Loan Application
After meeting all the specified requirements, you may apply for the loan. Make your application and submit the required documents to your chosen lender.
You may also access the lender’s website and make an online application. Once the loan is approved, the lender will send you an approval letter.
Remember that the lender disburses the loan amount to your contractor’s account, not your own. Doing this keeps borrowers from using the money for personal expenses.
Start The Renovations
Once the money is disbursed, it’s time for the renovations to begin, to turn your house into the paradise you dreamed of. But, a critical part of understanding “how does renovation loan work” is knowing that after the money disbursement marks the start of the loan repayments.
When it comes to the repayment, stick to the stipulated monthly repayments to avoid getting penalties that could ruin your credit score.
Note that even early payment may attract a penalty. So, ensure that you clearly understand all the terms and conditions of your loan before applying for it, and review them occasionally if need be.
Getting A Home Renovation Loan in Singapore Is Easy
Getting a home renovation loan from a bank or other lender in Singapore is relatively easy.
But Credit 21 stands out in the money lending industry as one of the most reliable, lenient, lower interest, and generous loaning institutions with excellent customer service.
Apply with us here, and ina short while, we will approve the loan and avail you the funds you need for your home improvements.
