Personal Finance

How Much Housing Loan Can I Take?

October 29, 2022

How much one can access for a housing loan can be the start or end of one’s home ownership dream.

So if you’re wondering “how much housing loan can I take?”, know that this depends on many factors.

Money lenders consider several things before creating a loan offer. These include the borrower’s income, and the condition and location of the property.

They also conduct complex home loan eligibility calculations that incorporate industry terms such as the LTV ratio.

Some of these terms may make most borrowers confused. Yet, it is essential to understand them to know one’s borrowing position better.

We will help you understand these terms and how they affect how much you can take for a housing loan with the different lending institutions in Singapore.

What Is The LTV Ratio?

The loan-to-value (LTV) ratio defines the amount you can borrow for your home loan.

It allows a money lender to establish the loan amount you should access for your home or downpayment against your home’s value.

If a lender determines that your LTV ratio is 50%, this means you can borrow up to 50% of the property price or value.

What To Know About The Maximum LTV Ratio In Singapore

The source of the loan (i.e. the lender) rather than the type of property sold, is what determines the maximum LTV ratio in Singapore.

Currently, the maximum LTV ratio for a HDB concessionary loan is 80% as of 30 Sep 2022, while the maximum LTV ratio for bank loans is 75%.

The LTV ratio for HDB loans used to be at 90%, but as of 16 Dec 2021, it was brought down to 85%. Now it is 80%. The remaining 20% of the property’s price is paid with cash, your CPF Ordinary Account (OA), or both.

With a bank loan, you can pay the outstanding 25% using cash, your CPF OA, or both. However, you must pay 5% of the outstanding amount in cash.

At times, the resale price of a property might exceed its actual valuation. This difference is known as Cash Over Valuation (COV).

The Maximum LTV Ratio In Practice

Let’s say that you want to purchase a two-bedroom HDB resale flat at a quoted price of $500,000. Yet, according to HDB, the resale flat has a market value of $515,000.

     a. What Is The Cash Over Valuation (COV)?

Remember, COV is the difference between actual value and selling price. Thus, the COV is:

$515,000 – $500,000 = $15,000

      b. What Are Your Payment Options?

Using A Bank Loan

As per a bank’s LTV ratio, you could borrow $375,000 (75% of $500,000).

Take $100,000 from your CPF OA (20% of $500,000) for additional payment. You then pay remaining amount, $25,000 (5% of $500,000) in cash.

The bank loan does not cover the COV – you must find a way to pay it.

Using A HDB Loan

In such a scenario, $400,000 (80% of $500,000) is the maximum loan for an HDB you could access. You could pay the remaining amount through your CPF OA, cash, or both.

Also, a HDB loan does not cover the COV – you must pay it in cash.

In addition, it is not a guarantee that you can access the maximum LTV ratio. Depending on a borrower’s situation, HDB and banks can decide to lower the LTV.

Why You Should Lower The LTV Ratio

Lenders consider a lower LTV ratio to be favourable.

A lower LTV ratio shows that you have more equity in the property and are likely to borrow less, while a higher LTV ratio will make the mortgage more expensive, which is riskier to the lender.

A lower LTV ratio means a borrower is likely to receive a loan as it is less risky to the lender.

A lower LTV ratio also eliminates the need for you to take Private Mortgage Insurance (PMI), reducing your monthly repayments. This allows you to get a better rate on your loan.

Let’s say you have a LTV ratio of 75% for a bank loan condominium.

If you cannot raise the remaining 25%, you may have to buy PMI. This will increase your monthly payment, making it hard to repay the mortgage.

How To Lower Your LTV Ratio

There are two ways of lowering your LTV ratio:

Make A Large Downpayment

Putting down a significant downpayment on a property means you do not have to borrow as much money. With a higher initial capital outlay, you are likely to get better loan rates.

Purchase A Cheaper Property

You could also buy a less expensive property using your downpayment. Once you get the loan, you can easily repay it.

How Much Mortgage Loan Can You Afford?

Before any property purchase, you should consider every cost. In this case, there are two crucial costs –upfront and ongoing costs.

Upfront Costs

These refer to the initial capital requirement, usually in the form of a downpayment. A downpayment is not just an industry procedure but also a means to affirm your commitment to a seller.

You should have some amount saved for the downpayment. The savings could be in the form of CPF OA savings, cash savings, or proceeds from selling your old property, if applicable.

These savings could increase your chances of receiving the amount you desire for a loan.

Other upfront costs include the stamp duty, option fee, as well as renovation, legal, and other miscellaneous costs.

Ongoing Costs

Monthly mortgage payments are a borrower’s way of honouring the loan agreement. You should seek a loan with manageable monthly mortgage payments.

Your principal loan amount and tenure play a huge part in determining your monthly payments. A longer loan tenure would reduce the monthly payments, but you would pay more interest in the long run.

The interest rates could also change over the course of the loan. Don’t be fooled by lower introductory interest rates.

Always read the fine print and compare loans from different lenders.

In addition to the possibility of an unprecedented interest rate hike, you should consider insurance costs.

Insurance protects you from unforeseen events. Therefore, you should also budget for fire, homeowner, or property insurance, whichever is most applicable.

You cannot settle these ongoing costs by using your CPF OA savings. You need to do some planning and set some money aside.

HDB Loan Vs Bank Loan

Below is a summary of the terms you can expect for a mortgage loan with the HDB or banks.

HDB Loans

  • Borrow up to 80% of the property price or value (whichever is lower)
  • 15% can be paid using cash, your CPF OA, or both
  • No chargeable fees for early repayment
  • Allows for a switch to a bank loan
  • The maximum loan period is up to 30 years
  • The interest rate (2.6%) is pegged at 0.1% above the current CPF rate. It is reviewed quarterly
  • The total debt servicing ratio is not applicable
  • The mortgage servicing ratio is set at 30%
  • 15% upfront downpayment

Bank Loans

  • Borrow up to 75% of the property price or value (whichever is lower)
  • 25% can be paid using cash, your CPF OA, or both
  • 5% must be paid in cash
  • May charge for early repayment
  • Does not allow for a switch to an HDB loan
  • The maximum loan period is up to 30 years for a HDB flat and 35 years for private property
  • The interest rates are fixed or floating
  • The total debt servicing ratio is set at 55%
  • The mortgage servicing ratio is fixed at 30%

Other Factors That Lenders Consider

Your Credit Score

Your credit report has a record of past loan transactions with licensed lenders. This includes your history of non-payment or default.

Late repayment sets you up as a credit risk, lowering your LTV ratio. So repay your loans on time if you want to get the maximum housing loan in Singapore.

Your Age Plus Loan Tenure

In Singapore, there is a maximum age for a housing loan.

If your private property exceeds 30 years or your loan tenure plus age exceeds 65 years, the LTV is capped at 55%.

In addition, if your HDB flat exceeds 25 years or your loan tenure plus age exceeds 65 years, the LTV is capped at 55%.

This implies that for private mortgages taken by a borrower of 35 years, they should repay the loan in full before turning 65 years old to enjoy a higher LTV of 75%.

Location And Property Condition

Properties in undesirable locations may limit the loan amount accessible to you. Properties with major defects are also risky and likely to get poor mortgage rates.

Outstanding Mortgage Loans

The more outstanding loans you have, the lower the LTV limit in Singapore. For instance, if you have one outstanding mortgage loan, the LTV for your next home is set at 45%.

Find Out How Much Housing Loan You Can Get

Now you can answer the question “how much housing loan can I take?” and know about the factors determining how much you can borrow for a home loan.

The next step is to get a lender with the best rates.

Licensed money lender GS Credit offers fast cash loans at some of the lowest interest rates in Singapore. Our well-trained staff will answer all your questions and give you the best financial assistance.

Contact us today at +65 6563 0321 or apply for a loan now.

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