The homeownership journey is that is full of thrills and spills in equal measure.
You are finally getting a place of your own, but on the other hand, the high cost of real estate makes it nearly impossible for you to pay for a home at one go, raising the question of where you can get the funds.
It is no wonder then that the popularly searched questions on the search engines of most would-be homeowners are “how much can I borrow for a home loan” and “how much loan can I get from the bank”.
If you’re also wondering “how much housing loan can I take”, the answer lies in the policies that the government and various financial institutions in Singapore have enacted.
There are measures in place that ensure that getting credit is legal, secure and fair for lenders and borrowers such as the loan-to-value (LTV) ratio.
Read on to see how the LTV ratio and other factors determine your eligibility, so you know how much housing loan can I take.
What Is The LTV Ratio?
The LTV ratio is the figure obtained from placing the value of the secured loan to be issued or already issued against the appraised value of the purchased property, expressed as a percentage.
LTV Ratio = (Loan to disburse or current loan balance ÷ Property’s Appraised Value) × 100
In other words, it is the share of the secured loan in the property purchase, going by the property’s market value. It also reflects the maximum amount of money a lender can give you to finance the property purchase.
Lenders use the LTV ratio to measure the amount of risk they would be assuming if they were to proceed and lend you the money. If they deem the risk to be worth it, they will issue the loan.
As a borrower, you stand a better chance of getting the loan when the LTV is low because the lender will be less apprehensive about giving you the money.
So ensure that you lay down a sizeable downpayment because your LTV ratio will be low, which means you will need to borrow less.
What To Know About The Maximum LTV Ratio
The maximum LTV in Singapore is the maximum amount a lender can give towards your purchase of a new home. It is a safeguard that keeps lenders from taking on too much risk.
Most licensed money lenders in Singapore set their LTV at 75%. Banks have also set theirs at 75%, while the maximum loan for HDB is 80% as of 30 Sep 2022.
A HDB housing loan can only be issued for the purchase of HDB flats.
The Singapore government determines these loan ceilings. For example, it placed a 75% cap on loans with a maximum tenure of 30 years or less.
For HDB flats with a loan tenure of more than 25 years, the LTV drops to 55%. A HDB flat whose tenure will extend past the borrower’s 65th birthday will also get the 55% LTV ratio. In this case, even the minimum cash downpayment rises to 10%.
The age of 65 is the maximum age for a housing loan in Singapore. This is because at that age, the borrower is assumed to have lower financial productivity and be close to retirement. Handling a mortgage payment then may prove difficult.
How To Lower Your LTV Ratio
As a borrower, you want your LTV to be as low as possible to motivate lenders to give you credit.
You can also lower it by making a substantial downpayment or by opting for a less expensive property so that your money can cover a more significant chunk of the property value.
Another way to do it is to postpone your purchase to a later date when you will have more money. If you saved up for a little longer, you would get to purchase your dream property rather than settling for a less expensive one.
The LTV ratio should also be kept low for those who are refinancing their homes. When it comes to refinancing, the LTV is an indicator of the equity the owner has accrued over the years through the downpayment and monthly payments.
In other words, the more money you have paid for your property, the lower the LTV will be.
Alternatively, with refinancing, time can work in your favour.
For instance, let’s say the value of the properties in your neighbourhood has been going up. Waiting for some time before having your house reappraised could get you a much lower LTV because your home’s value will have gone up.
Why You Should Lower The LTV Ratio
It would help if you worked to lower your LTV ratio because it gives you better leverage when approaching lenders.
The lenders see your commitment to paying to own your home, so they will be more likely to entrust their resources to you. They may also give you more favourable Ioan terms.
How Much Mortgage Loan Can You Afford?
One of the nuggets of wisdom that real estate experts dispense to borrowers entering the property market is to only choose a property that they can afford.
They also must not apply for loans they cannot afford to repay. The reason is that if they could not pay at some point, they would lose the entire investment.
So as you start the loan application process, ensure that you have the money to cover all the property and loan expenses that may come up.
Some examples of costs you should ready yourself to pay are the:
There are many upfront costs to settle, such as the downpayment, agent’s fees, legal costs, and option fees.
The new property may also need a few renovations and adjustments before you move in. All these costs need to be settled with cash, which you should keep on hand.
As you move into the new property, you will need some ready cash to settle monthly expenses such as property insurance, fire insurance, property tax, and various utility fees.
A fall in the property value should also be regarded as an ongoing expense.
This will raise the LTV ratio, and you would need to add more money to the downpayment or increase the monthly installments to lower the LTV ratio.
A rise in the interest rate of your home loan may have the same effect. If you are on a floating rate, this shift in interest rate is more likely to happen and may raise your LTV ratio.
Every month, you are obliged to pay back some part of the principal amount borrowed and some interest.
So keep aside some funds for these monthly payments to ensure that you do not miss any payment.
HDB Loan Vs Bank Loan
Your choice of which option you should choose to finance your home purchase gets down to what you prefer, going by their terms and conditions.
For example, one of the terms that stand out is that you cannot use a HDB loan to buy any other property besides a HDB flat.
So if you wanted something different, you would have to source it elsewhere – say, get a bank loan for a condo.
The table below compares and contrasts getting a HDB loan vs a bank loan, and may give you a better picture of what to expect for each option.
|HDB Loan||Bank Loan|
|Downpayment||20% that can be paid entirely with CPF savings||25% (5% cash, 20% cash or CPF)|
|Interest Rate||Constant 2.6%||1.2-2.2%, may increase every two to three years|
|Maximum Tenure||Up to 25 years||Up to 30 years|
|Minimum Loan Size||None||$100,000|
|Repayment Amount||Consistent due to fixed interest rate||Changes because interest rate changes|
|Early Repayment||No penalty||1.5% penalty|
|Late Repayment||7.5% yearly late fee|
7.5% yearly late fee
Charged per installment
|Borrower Eligibility||Many requirements, such as citizenship, income caps, etc||Good credit score|
|Property Eligibility||HDB flats only||HDB flats and private property|
|Loan Switch||Can switch to bank loan||Cannot switch to HDB|
Other Factors To Consider
Besides the terms above, your eligibility and choices depend on the following factors:
- The number of loans you currently hold, and their outstanding balances
- The location of your desired property
- Your credit score
- The sum of your age and the tenure of the loan you’re applying for
Make The Right Housing Loan Choice
For some, a loan from either HDB or a bank may not be a perfect solution.
But this is not to say that you should let your homeownership dream go or have to put up with conditions that are uncomfortable to you.
If you’re still wondering how much housing loan can I take, licensed money lender Credit 21 has flexible and friendly loan terms that can be customised to your needs.
We offer a variety of financial products, and assure you that you will find something that meets your needs.
Our team of professionals will work closely with you to come up with a comfortable and suitable financial solution.
We are an accredited lender with the Registry of Moneylenders, and you can trust us to handle your financial needs with professionalism and honour.