How Much Can You Borrow For Your Home Loan?
A while back, determining how much you could borrow for a home loan and getting the actual loan was like fishing.
You never knew what to expect until you cast your net and felt the tension.
But now, things are changing. It is easier to determine a property within your fiscal reach before inquiring or making an offer.
In fact, doing the math using a housing loan calculator for Singapore home loans now takes a few minutes or less in Singapore.
Presently, the planning and cashflow management tools available to lenders allow them to take stock of their resources and guide you on how to leverage yours to get a home loan.
The following guide will help both first-time and old-hand buyers in Singapore understand why they are getting the deal that they are getting and what their options are.
How Loan Amount And Tenure Are Determined
“How much can I borrow for a home loan?” is a question that may have crossed your mind at some point. Now, this has become a much more complicated question depending on the situation.
A stable job and a good income would be enough a while back. But things have changed.
Money is no longer the measure of job security, and the value of money is ever fluctuating depending on the economy.
What determines your loan amount and tenure is your income – plus financial commitment.
Income And Financial Commitment
Lending is a delicate affair; and lenders must consider more significant mathematical risk factors to protect themselves and the borrower.
Most importantly, lenders will consider your debt-to-income ratio to decide the maximum amount you can borrow for a home loan.
Using a mortgage calculator, a lender in Singapore will seek to determine these three things:
- Mortgage Servicing Ratio (MSR)
- Total Debt Servicing Ratio (TDSR), and
- Limits in the Loan To Value (LTV) ratio in Singapore
Through these formulas, a lender can assess if you will be able to pay them back.
Read on to find out how these formulas determine how much you can borrow in Singapore.
How Much Can You Borrow?
Mortgage Servicing Ratio (MSR)
MSR stands for monthly mortgage amount.
It shows how much of your monthly income (gross) you will use to service the mortgage.
It should not exceed 30% of the borrower’s gross monthly income. It only applies when taking a bank loan for a condo or buying an HDB flat.
Total Debt Servicing Ratio (TDSR)
TDSR refers to the monthly debts payment or monthly income.
The TDSR shows the monthly income (gross) used to service all your debts. It applies when taking a loan secured by a property or a loan for a property purchase.
Your monthly debt payments should not be higher than the TDSR threshold of 55%.
Loan-to-Value (LTV) Limit
The LTV is the loan amount or property value.
The LTV limit shows the maximum amount you can get for a house loan.
With LTV, lenders consider:
- Existing loans
- Loan tenure
- Monthly repayment as per your monthly income
- Discounts, and
A borrower’s LTV limits change depending on the number of existing house loans.
What Is The LTV Ratio?
The LTV ratio is the total amount you can borrow to finance your home.
To simplify, let us say a lender has determined that you have an LTV ratio of 75%. This would mean that you can borrow up to 75% of the property price or value – depending on which is lower.
It is quite possible to find a property priced higher than its value. The difference between the two is Cash Over Value (COV), which we will use later in our calculations.
In Dec 2021, the state regulator lowered the maximum LTV for HDB concessionary loans from 90% to 85%. The regulator determined that a borrower would pay the residual 15% through a borrower’s CPF Ordinary Account (CPF OA), cash, or both.
For banks in Singapore, the maximum LTV ratio on loans is 75%. In the case of a bank loan, a borrower should make a payment of 5% in cash. The rest could be in cash, through the CPF OA, or both.
Interestingly, the difference in LTV ratios is not due to the type of property you purchase. It varies depending on the lender.
So if you choose to finance an HDB flat with a bank loan, an LTV of 75% would apply to you.
If you decide to fund an HDB flat using an HDB concessionary loan, an LTV of 85% will apply to you.
How Does The LTV Ratio Work?
With An HDB Concessionary Loan
Say you want to get an HDB resale loan for a flat valued at $300,000. But the quoted price by the seller is $315,000. How do you determine how much the lender will loan you?
First, based on the discussion above, you can only borrow 85% of the lower amount between the price and value, which in this case is $300,000.
And 85% of $300,000 = $255,000.
Next, you could pay the remaining 15% of $300,000 through CPF OA or cash.
But remember, since the loan does not cover the Cash Over Value (COV) of $15,000, you will have to pay this in cash.
With A Bank Loan
Reimagine the same scenario above, but with a bank loan.
You want to get an HDB resale loan for a flat valued at $300,000. But the quoted price by the seller is $315,000. How do you determine how much the bank will loan you?
Based on the bank’s regulations, you can only borrow 75% of the lower amount between the price and value, which is $300,000.
And, 75% of $300,000 = $225,000.
Say you use 20% of your CPF OA to finance the loan = 20% of $300,000 = $60,000.
You will have to use your cash to pay the Cash Over Value (COV) of $15,000 and 5% of $300,000. This means you will pay a total of $30,000 in cash.
Factors That Lower The LTV Ratio
These factors affect how much loan you can get for your property’s value.
Poor Credit Score
A credit score alerts a lender that you are a credit risk.
Before considering a borrower for a home loan, the lender will check this to determine if he or she has a history of non-payment.
After which, it will inform the borrower of what they are willing to loan.
A poor credit score results from failure to promptly repay your personal, credit card, or mobile app loans.
You could check your credit score online or with the relevant credit reference bureaus.
Property Condition And Location
The location and condition of the property play a massive part in determining whether you get a lower limit or a higher one.
Lenders are likely to offer you a lower loan limit for properties in undesirable locations or abroad.
Run-down properties or major defects will also attract lower limits from lenders.
In Singapore, the younger one is, the longer the maximum loan tenure possible.
Presently, the maximum bank loan for an HDB flat is at 30 years, and 35 years for private property.
As of 6 Jul 2018, a new LTV regulation took effect in Singapore. The regulator decided that if an HDB flat’s loan tenure lasts more than 25 years or a borrower’s age plus loan tenure extends beyond 65, the LTV will be capped at 55%.
If the loan tenure for a private property exceeds 30 years or the borrower’s age plus loan tenure extends beyond 65, the LTV will also be capped at 55%.
Existing Lease On The Property
Lenders only make a loan offer for properties with a remaining lease of 36 to 40 years. The offered cap is usually at 60%.
But you can use your CPF to pay up to 15% of the property value.
The lender will not offer you their money for a property with a remaining lease of 35 years or less. Your CPF funds are also useless in this scenario.
You may have heard such properties with leases of 35 years or less still selling following monthly payments. Two scenarios would be the reason:
- A buyer negotiated a private contract with the seller, or
- A particular loan was curated for a buyer with a high net worth.
Existing Home Loan
If you have a prior loan commitment, your new home loan LTV has a cap of 45%. And if you have two outstanding home loans, the LTV ratio is further capped at 35%.
How To Get An HDB Loan
If you want to buy an HDB flat, you should consider getting an HDB loan.
An HDB loan enables one to borrow up to 85% of the property value or price, depending on which is lower.
The HDB considers the buyer’s age, monthly income, and financial standing.
One must apply for eligibility and get the HDB Loan Eligibility (HLE) Letter. The HLE will give you information on the amount you can borrow, required cash, monthly repayments, HDB loan maximum tenure, and other terms.
Our BST Credit housing loan calculator is one of the most reliable throughout Singapore.
If you want to know how much loan you can get from HDB or a bank, we will readily provide you with the exact figures.