Personal Finance

How Do You Apply For A Renovation Loan In Singapore?

September 20, 2022

Now that you have the keys to your new home, it’s time to complete the renovations so you can move in as soon as possible.

The cost of your renovation will be determined by various factors, including the size of your home, the extent of work required, the contractor you choose, and others.

Hence, renovations can also be very costly if you do not work within your budget.

After all, a dream home is made up of the memories you create in it, not just the money you spend on it.

But if you don’t have enough to create a dream home, you may need a renovation loan.

Let’s look at how to apply for a renovation loan, what it can be used for, and what to look out for.

What Is A Renovation Loan? 

If you need money for restoring or remodelling your home to a good state by doing repairs and fittings, a renovation loan might just be what you need.

This loan typically has a loan term of between one and five years, and the interest rates are much lower than that of personal loans.

You are also required to repay the loan to the money lender by the due date by making monthly payments.

When your loan request for renovations is accepted, the approved loan amount will be paid out in the form of a cashier’s order to the contractor.

After the loan has been disbursed, site visits may be conducted to ensure the loan is being used for the renovation projects specified in the quotation.

What To Consider Before Getting A Renovation Loan 

Just like any other loan you take, there are some considerations that you need to make before taking a home renovation loan. These include:

Interest Rates

When taking out a loan, the interest fees are the first thing that borrowers consider.

And rightfully so, given that it can add a few thousand dollars more to the loan principal.

Banks occasionally run promotions to increase the appeal of a bank renovation loan, such as lowered interest rates over time, waivers of processing fees, and other benefits.

However, it’s wise first to do your calculations thoroughly to determine whether it is appropriate for your circumstances.

Loan Quantum

It’s necessary to know how much you can borrow in addition to doing your own research.

This is because you need to determine the precise amount to borrow to finance your renovation project.

The amount a borrower may borrow for a home renovation loan in Singapore is six times his or her monthly income, or $30,000, whichever is less.

In addition, in order to be eligible for a renovation loan, you must earn a minimum of $24,000 per year.

Other Fees

In addition to paying interest on the renovation loan amount, other costs involved are as follows:

  • A processing fee of 1% of the loan amount approved
  • Late payment penalty of $80
  • An early repayment penalty fee of 1-2% of the outstanding loan balance
  • A loan cancellation fee of 1% of the cancelled loan amount

Loan Provider

You get a renovation loan from the same lender as your home loan, you will typically be able to save some money.

Banks may also provide renovation loan packages with discounts.

Therefore, before making your renovation plans, check out the current money lender’s promotions.

This will help you decide what kind of renovations you can do to take advantage of the promotional renovation loan interest rate.

How To Apply For A Renovation Loan

After planning your home renovation, you need to estimate how much you need for an ideal renovation.

You may also use a Renovation Loan Calculator to help you with that. After that, here are five easy steps when it comes to how to apply for a renovation loan:

Check If You Qualify

To qualify for a renovation facility in Singapore:

  • If you are the property owner, you will be the primary applicant.
  • You must be a Singaporean or permanent resident.
  • You must be between the ages of 21 to 55.
  • You need to earn a minimum of $24,000 per year.
  • Your joint applicant must be employed and must be family related.
  • You should have a decent credit score.

Request For A Quotation

After determining your eligibility for a renovation loan, you can begin looking for interior designers and contractors.

Request quotes from various vendors so that you can apply for the correct loan amount from the best offer.

Choose Your Lender

While some lenders use a flat rate, others base their loan offerings on a monthly rest calculation.

A flat rate is calculated based on the entire principal amount.

At first glance, flat rates are usually more affordable. But if you can repay consistently or even upfront, your effective interest rate will be lower with a monthly rest package.

The monthly rest interest, on the other hand, is charged on the loan amount outstanding every month.

This means you will eventually be paying less interest as you continue making the monthly repayments.

Get Your Documents Right

Some of the mandatory documents your lender will require include:

  • Your NRIC
  • The most recent IRAS Assessment Notice
  • Your most recent three months’ pay stubs; or
  • The previous 12 months’ CPF contribution statements
  • Original contractor quotation signed by both you and the contractor
  • Proof of ownership of the property to be renovated
  • Proof of the principal applicant’s and joint applicant’s relationship (for joint applications)

Loan Application

If you meet all the requirements, apply for the loan and submit the documents to your chosen lender.

You can also apply for the loan online through the lender’s website. When the loan is approved, you will receive a letter.

Note that loan disbursements for renovations are made to your contractor’s account rather than your own.

You won’t be able to withdraw the funds and use them for personal expenses.

Differences Between A Renovation Loan And Personal Loan 

While a personal loan has many uses, a renovation loan has a specific purpose. Hence, they have different features, as discussed below.

Loan Amount

It is possible to obtain a personal loan rather than a loan for home improvements.

A personal loan could have a maximum amount of $250,000 in Singapore. But renovation loans, which only go up to $30,000, are much smaller.

Minimum Income

As the primary applicant and your joint applicant, you must earn a minimum annual income of $24,000 and $12,000 respectively to be considered for a renovation loan in Singapore.

However, since there is no minimum income requirement (but only a maximum of how much you can borrow based on your annual salary), you can still obtain a personal loan from a licensed money lender.

Access To Funds

Personal loan proceeds are deposited into your account, and you are solely responsible for deciding how to spend them.

It follows that you can use this money to pay for your renovation, as well as additional furniture and fixtures.

Interest Charged

The interest charged on a renovation loan is based on the loan’s outstanding balance.

The monthly payment amount and interest paid decrease over time as you pay off your outstanding loan balance in full each month.

In comparison, most personal loans have higher interest rates. They employ a flat rate system, which bases interest payments on the total amount of the original loan.

This means that even though your outstanding loan balance decreases over time, the monthly interest rate stays the same for the duration of the loan.

Restriction On Purpose

While taking out a renovation loan has the advantage of lower interest rates, there are some limitations.

Only approved renovation-related work, such as tile installation and electrical wiring, is eligible for this loan.

As a result, you won’t be able to use the money to install furniture or curtains.

However, a personal loan can be used for anything you like, including a new couch set or air-conditioning unit.

Paperwork Involved

Obtaining a renovation loan can be more difficult because lenders must ensure that the loan is used for home improvement purposes only.

For instance, in addition to other paperwork such as proof of income, you’ll need to give the lender the renovation contract or a thorough quote.

In contrast, there are no limitations on what you can use the money for when it comes to a personal loan, and getting one requires less work and paperwork.

Criteria And Maximum Loan Amounts

If you want to apply for a renovation loan in Singapore, you have to meet the following criteria:

  • Be a Singapore citizen or permanent resident
  • Depending on your lender, you must be between the ages of 21 and 65
  • The main applicant must earn a minimum annual salary of $24,000

Consider applying for a personal loan if you are ineligible for a renovation loan. Bear in mind that the personal loan will have a higher interest rate.

How Much Renovation Loan Can You Get?

The much you can borrow for a renovation loan is $30,000, or six times your monthly salary, whichever is less.

To avoid borrowing more than you need to, you should estimate the renovation costs before applying for a loan.

You can submit two separate applications to two different lenders if your renovation costs more than $30,000.

But doing so would also require a monthly commitment to two different loan repayments.

As an alternative, you might want to think about applying for a personal loan with a higher borrowing limit.

You, however, need to check the total amount of your monthly debt obligations before taking out a second loan.

Your ability to take on monthly debt obligations is capped by the Total Debt Servicing Ratio (TDSR), which is currently set at 55% of your gross monthly salary.

Your debt obligation also includes any other secured or unsecured loans, in addition to the loan for the renovation.

What You Can Use A Renovation Loan For

As the name implies, a renovation loan is only used to renovate a home, whether it be with new fixtures, lighting, or even extensive repairs.

Consequently, you can use this loan only to pay for the following renovation expenses:

  • Flooring
  • Basic washroom fittings
  • Painting and redecorating works
  • Built-in cabinets and carpentry works
  • Electrical and wiring works
  • Exterior works and compound decorations

Hence, this loan cannot be used for other expenses that don’t add value to the structure of your home.

Examples of excluded expenses include furnishings, kitchenware, laundry machines, and other related costs.

You will have to apply for a separate furnishing loan in Singapore if you need financing for household items.

In addition, the lender conducts site visits to follow up on the loan’s disbursement and to make sure the loan proceeds were put to use for the quoted renovation projects.

Decide If A Renovation Loan Is What You Need

Purchasing a new home doesn’t mean you will like everything that the previous owner fitted.

There is always the urge to do a few facelifts to make it more appealing and comfortable.

Doing so also appreciates the value of your home. A home renovation loan from a bank or money lender is a special loan that can help you achieve your dream house.

While home renovation loans are packaged to suit this need, they also come with stringent requirements, and the amounts may not be as much as you may require.

In addition, you will have no control over the funds as they are channelled directly to your contractor.

A personal loan, in this case, would be an alternative despite the higher flat interest rate.

Have you moved or are ready to move into your new home but need some cash to make improvements?

GS Credit is a licensed and registered money lender in Singapore ready to offer you the best loan package for your home renovation.

Contact us today or apply for a loan now.

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