How Does A Renovation Loan Work In Singapore?
March 7, 2023
Sprucing up your home will not only give it a new look and feel but may even increase its value.
Whether you are planning to make your home suitable for the coming of a baby or introduce a remote office, renovations require a good sum of money.
If you are planning to renovate your Singapore home, you may be wondering how does a renovation loan work?
Renovation loans are a good option that you should consider. But how does a renovation loan work? Renovation loans can come in handy to tide you over the cost of renovations. And in this article, I will explain how renovation loans work in Singapore, how to apply for them, and the eligibility criteria.
By the end of this article, you should have a good idea of whether a renovation loan is right for you. Read on to learn as we answer the question on how does a renovation loan work.
What Is A Renovation Loan?
A renovation loan is financing you get from a lender to cover the cost of renovating your home. Renovation loans are strictly meant for a house renovation, and they can’t be used for any other purposes. Most lenders offer home improvement loans at a lower rate compared to personal loans.
The money borrowed for renovation is given to the borrower after the lender ascertains the need and disburses the money to the contractor or interior designer.
You can get a loan of up to six times your monthly income with a maximum loan tenure of five years.
When looking for a renovation, you need to know the terms and conditions. Most lenders charge admin fees if they have to disburse the money to different vendors. They also levy an insurance fee to cover outstanding loans in case of death or disability. Before signing up for a home renovation loan, scrutinize the following:
Renovation Loan Interest Rate
Most banks in Singapore charge an interest rate of 3.88-4.82 %. If you want to reduce the cost of the loan, always choose the one with the lowest interest rate.
Check what various lenders are offering and choose the best.
Lenders require you to have a minimum income of $24,000 to $30,000 per year and to be between 21 to 50 years old. You need to find out which lender will accept your income level and offer you a home improvement loan.
Tenure And Loan Amount
Lenders offer a maximum of 5 years for you to complete the home renovation loan. It’s important to confirm that the lender is offering the right tenure for you.
Also, lenders have different minimum loan amounts they can offer. Find out which lender will offer you the amount you need to complete the renovation.
Avoid borrowing from different lenders to cater to one needs. You are better off looking for one lender with terms that suit your needs.
Fees To Pay
A renovation loan will have standard fees such as processing fees, insurance fees, admin fees, prepayment, cancellation, and late payment fees.
You need to check which lender has the lowest fees before you sign up for the loan. Most lenders will charge between 1% to 2% for each of the above-named fees.
What You Need To Know About Renovation Loans In Singapore
Before you borrow for renovation, there are some important things you should know.
1. The Loan Caters To Specific Renovation Items
You need to know you can only use the loan to pay for certain home improvements. Renovation loans have restrictions on how you can use them. Lenders will specify how you can use the money you borrow.
The list of items you can renovate using the home renovation loan may differ from one lender to another, but here is a list of the most common ones.
- Work on the electrical and wiring systems.
You can carry out electrical work to enhance the safety of your family.
- Built-in cabinets
If you want to add or install cabinets, you can apply for a renovation loan.
- Painting and redecorating work
Apply for a renovation loan if you would like to give your house a fresh coat of paint and some decoration work.
- Structural alterations
Structural alteration seeks to change the look of your home. For instance, you may want to give your home a new look by redesigning your living room.
- Floor and tiling
High-traffic areas of your house often get damaged. Apply for a renovation loan to repair or replace it.
- External works within the compound, such as balconies and roofing.
External works include changes to balconies, the roof, and any other external parts of the house.
- Basic bathroom fittings
- Installation of solar panels
2. The Loan Can Be Used To Renovate All Types Of Residential Housing
You can use the renovation for buy-to-order, condominiums, HDB flats, landed homes, and any other type of residential housing.
3. Renovations Must Be Carried Out As Per The Schedule Agreed Upon With The Lender
Post disbursement, the lender may visit the site to assess the progress and ensure the money borrowed is put to the right use. You are not allowed to use the money to buy furniture, fittings, or decorative accessories.
How To Apply For A Renovation Loan In Singapore
Before you apply for a home renovation, you need to ensure that you have the funds that suit your situation. You need to ensure that you don’t overstretch your finances. Make sure you have the right budget and the sums you need to fully renovate your home.
Look out for the best rates and what is in the renovation loan package. Make sure it will suit your needs. Here is how to apply for a renovation loan.
Visit A Contractor And Request A Quote
The first step in your renovation process is to know how much you need. Get a qualified contractor to visit your home and give you a quote. This gives you an idea of how much money you need to borrow. It also helps you assess whether you need the renovation or whether other solutions will work.
A qualified contractor will be able to advise you on the best course of action and whether renovation is the ultimate solution.
Choose Your Preferred Lender
Check what various lenders are offering in terms of interest and the fees they are charging. Choose a lender with the lowest interest rate and the lowest fees. Also, make sure they have a loan tenure that you can work with.
Check Your Eligibility
Most lenders require the borrower to earn an income of between $24,000 to $ 30,000 per year. You must also be over the age of 21 and under the age of 60. Confirm your preferred lender’s eligibility criteria.
Prepare The Required Documents
When applying for the renovation loan, you will need to present documents showing that you meet the eligibility criteria. While every lender may require different documents, here are the most common documents you will need:
- Income documents to show how much you earn
- Quote from an approved contractor. The contractor must sign the quote.
- Proof of house ownership.
- Renovation permit if you are the owner of the contractor
- Completed loan application
Sign The Renovation Agreement
After confirming the renovation loan suits your needs, sign up for it. The money will be sent to your contractor, and the renovation work can begin.
How You Can Reduce The Cost Of Renovation
It’s costly to renovate your home. You will need to ensure you have enough cash flow to renovate your house and give it a new look. Here is how you can reduce the cost of renovation.
- Compare the cost of renovations from different contractors. Choose the one with the lowest cost.
- Check out the cheaper renovation task and use it. For example, confirm whether you can do an overlay on your floor instead of tiling it afresh.
- Choose materials that are high-quality but not costly. This will reduce the overall renovation cost.
- Ask yourself whether you need the renovation.
- Choose the lender with the lowest interest rates.
Having a budget for your home renovation gives you an idea of how much money you will require.
Now you can confidently answer the question on how does a renovation loan work prepare your documents and go ahead.
Apply for the renovation loan you need to carry out a thorough renovation to give your home the look and feel you desire. Choose the best renovation loan offer and make sure you can comfortably pay the loan.
At GS Credit, we offer you the renovation loan you need at an affordable rate and a short duration. Get the renovation loan you need and convert your home into a magical paradise.