“How much can I borrow for a home loan?” is what everyone frantically types into the Google search bar when they decide to purchase a home.
There’s a problem:
Most of the figures you’re getting aren’t accurate.
The recent modifications in the legislation have lowered the maximum amounts you’re eligible for. Eligibility criteria have also changed, and the terminology is sometimes hard to comprehend.
You’re on the right page, though.
This article has all the newest information and figures. Besides, we explain all the necessary details in layman terms so you can understand exactly what’s in store.
Keep reading below.
How Loan Amount And Tenure Are Determined
If you want to take a home loan, the maximum amount you can borrow and the tenure are determined by the factors below:
Younger people in Singapore have access to longer tenures. That said, the HDB loan maximum loan tenure is 30 years for HDB flats.
Private properties allow you to set a term up to 35 years.
Remember: It’s not always best to go for a longer tenure, even if that option decreases your installments.
Longer terms decrease the maximum amount you can borrow to just 55% of that property’s value. This happens for:
- HDB apartments: If your tenure is over 25 years
- Private properties: If your tenure is over 30 years
Your Income And Previous Loans
Your earnings and previous financial commitments determine the maximum housing loan in Singapore.
That’s because your home loan installment shouldn’t be a burden on your monthly budget.
If it is, you may default on your loan, which is not advantageous for the financial institution granting you the loan in the first place.
Therefore, the Singapore government has established the following variables to cap your loan:
Total Debt Servicing Ratio (TDSR)
This ratio defines the proportion of your debt compared to your gross income. In other words, it’s the ratio of your current loan installments compared to your earnings.
Remember: The TDSR in Singapore is 55%.
Therefore, you can’t legally pay more than 55% of your gross monthly income towards your loan installments.
A lower monthly installment translates into a lower maximum loan amount.
Warning: The type of income you earn matters. Therefore, commission-based workers or freelancers may be eligible for lower amounts.
Mortgage Servicing Ratio (MSR)
The MSR influences both the maximum bank loan for HDB and the maximum HDB loan. Luckily, it only applies to HDB properties.
The MSR is defined by the ratio between your mortgage loan installments over your gross monthly income.
Since the current MSR in Singapore is 30%, your HDB loan installment can’t be over 30% of your gross monthly earnings.
Therefore, a lower income translates into lower installments.
Pro tip: Use a mortgage calculator for Singapore to get the precise figure.
Amount Of Downpayment
You can access a larger loan amount if you have a larger downpayment.
Here are some potential sources for that downpayment:
- Your savings: If you have cash in your savings or deposit accounts, now’s the time to use them.
- CPF Ordinary Account (OA): Borrowing from your CPF OA has the advantage of lower interest. Besides, if you’re buying an HDB loan, you’ll have fewer bureaucratical hoops to jump through.
- Sales proceeds: Are you in the process of selling another property? Then you can use the sales proceeds as a downpayment or as a guarantee for a larger loan.
How Much Can You Borrow?
The factors above influence how much you can borrow for your home loan. You can also use a housing loan calculator for Singapore’s regulations.
But “how much can I borrow?” may be the wrong question.
The right one is: “how much can I afford to pay for my home loan?”
Remember: Never borrow more than you can afford to repay.
The costs you’ll want to consider are split into three categories:
1. Upfront Costs:
- Option fee
- Stamp duty
- Legal cost
- Agent’s commission
- Renovation costs
2. Monthly Installment:
The monthly installment is the amount you must pay monthly to reimburse your loan. This installment is made up of two parts:
- A payment that goes towards your principal amount
If you can afford a lower installment, your tenure will be longer. So while you can technically get the property of your dreams at a lower price, you will:
- Be debt-free later
- Pay more in interest over a longer loan term
3. Additional Ongoing Costs:
- Conservancy and management service fees
- Increase in your interest rate for floating-rate loans
Warning: Two other equally important factors influence the total amount you can borrow – the LTV ratio and the type of loan you take (HDB vs bank loan).
We’ll discuss these below.
What Is The LTV Ratio?
The loan-to-value (LTV) ratio defines the amount you can borrow for your home loan.
For example, an LTV of 60% means you can borrow just 60% of your property’s value.
Remember: The property’s value isn’t the same as the property’s cost. Unfortunately, LTV in Singapore is calculated based on whichever is lower between the price and the value.
If your future apartment’s price is higher than its value, the difference between the two numbers is called Cash Over Value (COV).
The type of loan you take influences your LTV ratio. Here’s how:
- The LTV ratio for HDB resale loans is 85% of the resale price or flat value, whichever is lower. That’s 5% lower than the former 90% cap since 16 Dec 2021. That means you’ll have to fork out the rest of the 15% yourself, using cash, your CPF OA, or both.
- The LTV ratio for new HDB properties is also 85%, but this time that LTV is calculated from the purchase price. As in the previous case, you can use a combination of cash and your CPF OA to cover the 15% downpayment.
- The LTV ratio for HDB bank loans is 75%. Your downpayment is 25%, out of which 5% of the property’s price or value must be paid in cash. You can use your CPF OA for the remaining 20%.
Warning: If you’re planning to purchase an executive condominium (EC) or a private apartment, you will need a bank loan for that condo. HDB loans don’t cover ECs or private properties.
How Does LTV Ratio Work?
Let’s take an example.
You want to purchase a resale apartment valued at $600,000, but the seller’s price is $620,000.
How much can you loan from HDB?
You can loan 85% of the lowest number between the apartment’s value and its asking price. That’s 85% of $600,000, meaning $510,000.
- The downpayment is 15% of $600,000, meaning $90,000. You can use any mix of cash and your CPF OA to pay the $90,000.
- The COV is calculated by subtracting the value ($600,000) from the asking price ($620,000). This $20,000 must be paid in cash.
How much can you get from banks?
You can loan 75% of the lowest number between the apartment’s value and its asking price. That’s 75% of $600,000, meaning $450,000.
- The downpayment is 25% of $600,000, meaning $150,000.
- 5% of $600,000 must be in cash. That’s $30,000. The remaining $120,000 can be taken from your CPF OA.
- The COV of $20,000 must also be in cash. Therefore, this particular bank loan demands you to fork out $50,000 in cash.
Warning: Singapore’s law prohibits people from taking bank loans to cover their apartments’ advance payments.
Factors That Lower The LTV Ratio
Even if the maximum LTV ratios are 85% for HDB loans and 75% for bank loans, it doesn’t mean you’ll get those amounts.
Here are the factors that lower how much you can borrow for your home loan:
1. Previous Home Loans
If you already have one other ongoing home loan:
- The maximum amount you can borrow (LTV ratio) for your second property is 45%.
- At least half of the 55% downpayment must be in cash.
The maximum amount you can borrow with two ongoing home loans is 35%. That translates into a whopping 65% downpayment.
Warning: These numbers are only for tenures of 30 years and below. You must also be younger than 65 years old by the end of your loan term.
If either of these two conditions is broken, your LTV can plummet even more.
2. Remaining Lease
- 35 years or less: You can’t usually get a home loan. However, you can negotiate a private contract with the seller that allows you to repay them in monthly installments. That mode of payment is similar to a loan, but you’ll pay the seller directly.
- 36-40 years: The maximum LTV ratio is 60%. You can use your CPF OA to pay 15% of the property’s price/value, but the remaining 25% must be in cash.
3. The Property’s Location And Condition
Properties with poor locations and conditions have lower LTV ratios. That’s because lending you the money for such a property represents a higher risk for the HDB or Singapore banks.
4. Your Age And Loan Tenure
The maximum LTV is 55% if:
- You’re purchasing private property, and the tenure is over 30 years, or you’re older than 65 at the end of this loan term.
- You’re purchasing an HDB flat, and the tenure is over 25 years, or you’re older than 65 at the end of this loan term.
Warning: If you have previous home loans and have broken the above-stated age and tenure limits, you may only borrow up to 25% of this new property’s price.
Let’s say you’re taking a home loan and are 40 years old.
- If you want to benefit from the maximum 75% bank loan, the maximum tenure you can set is 25 years.
- If you want to benefit from the maximum 85% HDB loan, the maximum tenure you can set is 20 years.
5. Credit Rating
A poor credit rating means you’re not a diligent financial customer. Therefore, financial institutions have less trust in your ability to repay this home loan.
As such, they are legally allowed to lend you less money.
Here’s what you can do:
- Consider a debt consolidation loan with Credit 21 to repay your previous loans
- Close unused credit cards
- Repay your outstanding bills on time
How To Get A HDB Loan
Getting an HDB loan isn’t as easy as sending an application. You’ll first have to check the eligibility criteria and ensure you’re a good fit.
The factors that influence your eligibility are your:
- Family status
- At least one person in your family or group of applicants must be a Singaporean citizen
- The applicants and people who will be living in that HDB property can’t have more than one other previous HDB loan.
- If you or the future occupiers have taken one other HDB loan, the last property you owned can’t be a private property (in Singapore or abroad).
- If you’re 55 years or older, you can’t apply for a short-lease Flexi flat or Community Care Apartment with two rooms.
- If you’re applying as a single person, you must be at least 35. In this case, you’re only eligible for:
- Two-room flexi flats with 99-year leases in non-mature estates, or
- Resale apartments of up to five rooms
- The maximum gross income per household per month should be:
- $14,000 for families
- $21,000 for extended families
- $7,000 for singles using the Single Singapore Citizen (SSC) scheme
- The loan amount depends on the difference between the youngest buyer’s age and the age of 95.
- The applicants and future occupiers must not own another private residential property in Singapore or abroad. If you had owned this type of property, you must have sold it at least 30 months before applying for this HDB loan.
- The applicants and future occupiers are allowed to own a maximum of one:
- Market or hawker stall
- Commercial property
- Industrial property
However, you must do your business there, and this property must be your only source of income.
Send an HDB Loan Eligibility (HLE) letter to check your eligibility.
Find Your Ideal Home Loan Today
An HDB loan may be more convenient than a bank loan because you can obtain up to 85% of its price (or value).
You also have to fork out a lower downpayment, which you can repay using just your CPF OA.
However, a bank loan allows you to be debt-free faster because the larger initial downpayment means there’s less money to repay.
Bank loans also come with lower interest rates.
Need more cash for your advance payment or to cover the COV difference?
Consider a personal loan from a trustworthy licensed money lender. An experienced credit provider like Credit 21 can seamlessly integrate this loan into your other expenses so that you:
- Can access a larger amount
- Make comfortable monthly repayments
Apply for a loan with us now.