How Much Housing Loan Can I Take?
Most Singaporeans looking to buy a home often ask “how much housing loan can I take?” The answer to this momentous question lies in your borrowing limit.
Buying a home dream within your means is crucial. You need to know how much downpayment to pay, how much you can borrow, and the various factors that affect your borrowing limit.
In this article, we will help you understand the process of buying a home and how to choose a housing loan.
How Much Can I Borrow For A Home Loan?
Before determining how much to borrow, you need to work out what you can afford. You can choose to take a HDB loan or bank loan.
Due to the stringent eligibility criteria for HDB loans, most Singaporeans will ask “how much loan can I get from the bank?”
Bank loan interest rates occasionally fluctuate. The interest rate for HDB loans is currently 2.6%. The interest rate for a bank loan is usually lower.
To purchase a HDB flat, you need to know the maximum loan amount you can get from HDB. However, you can get a bank loan if you want to finance a private property since HDB loans can only be used for HDB flats.
Other Factors To Consider
In addition to the above, lenders will decide what to offer you based on your age, outstanding loans, loan tenure, and credit score. In addition, they will consider the location of your property and its condition.
What you can borrow will largely depend on your cash savings, income, and your CPF Ordinary Account (OA) savings.
Remember that you will need to factor in upfront costs and ongoing expenses such as management service fees, property taxes, mortgage insurance, and more.
You will also have to make monthly loan installments based on the amount you borrow and your loan tenure. It all boils down to your eligibility.
How Much Mortgage Loan Can You Afford?
Once you know how much you can afford, you have to consider the lending guidelines set by HDB and banks.
Both HDB and banks can’t lend any amount a borrower requests. They have lending restrictions based on three ratios:
- Mortgage Servicing Ratio (MSR): This refers to the portion of your gross monthly income used to repay property loans. The ratio is capped at 30% of your total monthly income.
- Total Debt Servicing Ratio (TDSR): This denotes the percentage of your gross monthly income used to repay your monthly debt obligations and any other loan you will apply for. Your ratio should be less or equal to 55%.
- Loan-To-Value (LTV) Ratio: This is the percentage of your property’s value you can borrow from a lender.
One of the most vital factors in your mortgage process is the LTV ratio. It’s the tool lenders use to measure your housing loan before approval.
Understanding the LTV ratio is essential as it determines what you can afford.
What Is The LTV Ratio?
The LTV ratio is the amount of your loan relative to your property’s total value. To know your LTV ratio, you can divide your current loan balance with your home appraised value.
Here’s an example:
Current loan balance = $400,000
Home appraised value = $600,000
LTV ratio = $400,000 ÷ $600,000 = 66%
There is a regulation for lenders on the maximum housing loan in Singapore. Such a limit depends on the type of property and outstanding mortgage loans you have.
The maximum LTV ratio for bank loans is 75%, and 80% for HDB loans as of 30 Sep 2022. Unfortunately, these maximum limits are not guaranteed in Singapore – your lender can choose to lower the LTV as they deem fit.
Lenders need the assurance that you can repay your loan. As such, they are concerned you’re your LTV is high. This means you need to borrow more.
A high LTV ratio makes lenders take a step back and term you as a risky borrower as your risk of defaulting is higher.
It also means you will have to pay more interest or even higher fees for your housing loan. Conversely, a lower LTV ratio offers a chance for attractive mortgage deals. It also increases your chances of loan approval.
As you contemplate the question “how much housing loan can I take?”, it’s crucial to know why and how to lower your LTV ratio.
Why You Should Lower The LTV Ratio
If you want to borrow less and invest more cash when purchasing your dream home, you should lower your LTV ratio. Your lender may offer lower interest rates. Others may even request for less income-related paperwork.
More importantly, a lower LTV ratio makes lenders approve your housing loan faster.
As a rule of thumb, any bank loan will not exceed the 75% LTV limit for the first housing loan. For the remaining 25%, you must pay 5% in cash, and the 20% using cash or your CPF OA, or both.
If you have subsequent loans, your second housing loan’s LTV may fall to 45%, and 35% for the third housing loan.
For a HDB loan, you can get up to 80%. The remaining 20% can be paid using your CPF OA, cash, or both.
If your downpayment is lower, your mortgage interest will be high. Plus, you may be forced to pay mortgage insurance to mitigate the lender’s risk since you are borrowing more.
Worse, you may not even qualify for a mortgage.
How To Lower Your LTV Ratio
If your LTV ratio is high, here are some ways to lower it.
- Save more for a considerable deposit. You will not only save on your upfront costs, but making a bigger downpayment will also make your mortgage cheaper.
- Make extra principal payments. Since you have decided to buy a home, you can choose to make some extra principal payments. This will go a long way toward reducing your LTV ratio. You will also save on interest costs.
- Purchase a less expensive property. Since the property cost is lower, you will need to borrow less. Consequently, this will lower your LTV ratio.
Having realistic expectations will help you plan wisely for your home purchase. Once you know how much to borrow, the next primary concern is which loan to go for – a HDB loan or bank loan.
If you can’t choose between the two, we will list out some differences that may help you decide on the best deal.
HDB Loan Vs Bank Loan
There are five main differences: the LTV ratio, downpayment, interest, loan tenure, and lock-in period as shown in the table below:
|Parameters||HDB Loan||Bank Loan|
|Downpayment||20% upfront to be paid using OA savings||25%, where 5% is to be paid in cash; 20% in cash or OA savings|
|Interest||Currently, 2.6% pegged at 0.1% above the OA interest rate||Keeps fluctuating with market conditions. But may be lower than 2.6%|
|Loan Tenure||Up to 25 years||Not more than 35 years for private properties and up to 30 years for HDB flats|
|Lock-In Period||No penalty when you refinance within the lock-in period||Early repayment incurs fees|
Choose The Right Housing Loan For Your Needs
Homeownership is a huge step for any Singaporean. That’s why you must know how much housing loan can I take.
If you don’t have enough savings, it may take years to own your dream house, so it makes sense to apply for a housing loan.
However, the process is often daunting to first-time homeowners and may require the help of experts.
A good lender will help you calculate housing loan metrics and your ability to repay the loan.
Frequently Asked Questions
What Is A Good LTV Ratio In Singapore?
A good LTV ratio for a bank loan and HDB loan should not be more than 75% and 80%, respectively. Anything above that will be considered high-risk by a lender.
Is A High LTV Ratio Good Or Bad?
The higher the LTV, the riskier it becomes to the lender. You might face high interest or have to buy mortgage insurance, or be denied a loan.
Conversely, the lower the LTV ratio, the better – you enjoy lower interest rates and higher chances of loan approval.
How Much Housing Loan Can I Qualify For?
The maximum loan you can qualify for bank loans is up to 75%, while the maximum loan for HDB is up to 80% of the purchase price.
However, you may not get the maximum loan amount from lenders. Factors such as your age, financial standing, and monthly income affect your loan limit.
Are There Age Limits For Housing Loans In Singapore?
The minimum age for a housing loan in Singapore is 21 years old, and the maximum age is 65 years old.