In Singapore, owning a home of one’s own is relatively achievable, thanks to the country’s housing loans, particularly bank and HDB loans.
These loans make it easier to purchase a new home by providing the required financing. But if the question “how much housing loan can I take?” is on your mind, we will answer it in this article.
We will talk about these loans in detail, particularly how to lower your LTV ratio to determine the housing loan you can take.
What Is The Loan-To-Value (LTV) Ratio?
The LTV ratio is the maximum amount (in percentage) you can borrow to finance your home purchase.
Lenders use the LTV ratio to evaluate the value of the housing loan you’re requesting in relation to your property’s market value.
Different lenders have different LTV ratios. Banks, for instance, can accept a maximum LTV ratio of 75%. The remaining 25% must be paid by you – you can use your CPF savings in your Ordinary Account to pay 20% and settle the remaining 5% with cash.
As of 30 Sep 2022, HDB now offers a maximum LTV ratio of 80% of the property’s value or purchase price, whichever is lower. It was previously 85%. The remaining 20% can be paid with cash, your CPF OA, or a combination of both.
If your property is priced above its value, the difference is known as Cash Over Valuation (COV).
What To Know About The Maximum LTV Ratio
When calculating the loan amount you can get from a bank or HDB, do note that banks and HDB are not obliged to lend you the maximum LTV of 75% or 80% respectively.
This means that for some reasons, your lender can choose to lower the LTV ratio. These reasons include:
Your Outstanding Home Loans
An outstanding home loan will result in the LTV ratio of your second home loan being lowered to 45%.
This leaves you with a deficit of 55%, where half of it needs to be the downpayment. This has to be paid with your CPF savings, and the other half paid with cash.
If you have two outstanding home loans, your third home loan LTV will be lowered to 35%.
However, there is a limitation here. These LTV ratios only apply to loans with a loan tenure of 30 years and below. Anything outside of these would lead to an even lower LTV.
Your Credit Score
The law now requires that licensed money lenders check your credit report before approving any loan request. This is intended to prevent over-borrowing, which in turn leads to delayed repayments or defaulting.
If you have a history of delaying payment and defaulting, your LTV ratio will be lowered outright. So maintain a good credit score by making timely payments and not taking multiple loans from lenders at a time.
State And Location Of The Property
A neglected property with significant or minor issues will have a low LTV ratio. Similarly, properties located outside Singapore and in undesirable neighbourhoods will get a low LTV ratio.
Remaining Lease On The Property
Properties with a remaining lease of 30 to 40 years will have a maximum LTV of 60%.
If the property’s lease has less than 35 years left, you cannot settle the downpayment with your CPF funds. You’ll have to pay cash.
However, if the lease has between 36 to 40 years left, you can pay up to 15% of the downpayment with CPF savings.
With these factors in mind, you can estimate how much you can borrow for a home loan for your next home. You can also compare different lenders to get the best rates and terms.
Consider checking out U Credit, a trusted licensed money lender in Singapore that offers home loans with flexible repayment terms and lower interest rates.
Bear in mind that in cases where the above reasons are not applicable, the lender can choose to reject your loan application.
Why And How You Should Lower The LTV Ratio
The ideal LTV ratio is 80% and below. This is because anything higher is viewed as a risk factor.
Your lender will require you to pay mortgage insurance to mitigate this risk. This is a protective measure in case you delay payment or default on loan.
An LTV of 80% and below can help you get a loan with more favourable rates and payment terms. With a lower LTV ratio, you would not need to pay mortgage insurance.
So aim to maintain a lower LTV ratio. You can do this by:
Choosing What You Can Afford
It is advisable to choose a home you can afford in the long run. This is because besides the downpayment, a home comes with numerous related costs such as monthly installments.
A more affordable or lower-priced home means you’ll need to borrow less to finance it. This will, in turn, lower your LTV ratio.
If you can’t find a low-priced home, you can try negotiating with the seller. Some sellers are in a rush to sell the property and may not mind selling at a lower price.
Pay A Large Downpayment
Doing so will lower the amount you’ll need to borrow. A lower loan amount equates to a lower LTV ratio.
To help you understand better, try using an online mortgage calculator. Such a calculator shows you the difference a large downpayment makes in your overall loan amount.
How Much Housing Loan Can I Take?
Before you can answer this, first determine how much you can afford. As mentioned earlier, there are additional costs that come with purchasing a home.
These include expenses such as:
- Upfront costs – the downpayment
- Ongoing costs – taxes
- Monthly payments – the principal monthly installment and interest
To determine whether you can afford to cater for all these expenses in the end, check how much you have. To do so, add up your:
- Cash savings
- CPF savings
- Monthly income
- Net proceeds from the sales of your old home (if applicable)
With these numbers in mind, you can search for a housing loan in Singapore with flexible monthly payments.
You can choose a loan with a long tenure to reduce your monthly payments. But keep in mind this will increase the total amount you’ll pay in interest.
Banks and HDB examine different factors before approving your loan and deciding how much to lend to you, such as:
Mortgage Servicing Ratio (MSR)
The MSR measures the proportion of your monthly income used to pay or service your home loan. Banks and HDB home loans accept a maximum MSR of 30%.
This is calculated by dividing your monthly mortgage payment by your gross monthly income.
If, for example, you earn $3,000 per month, your home loan monthly payment would be: $3,000 x 0.3% = $900.
Total Debt Servicing Ratio (TDSR)
The TDSR sums up all of your regular monthly debt payments such as a car loan, home loan, or credit card debt. Currently, the TDSR cap is set at 55% of your monthly income.
This means you cannot obtain a mortgage if the total monthly loan installments exceed 55% of your monthly income.
The LTV ratio is a way to gauge how much of a loan a given property is given in relation to its market worth. To determine your LTV ratio, divide your desired loan principal by the cost of the property.
The LTV formula is: Loan Amount / Asset Price = LTV Ratio
For example, if you want to borrow a loan amount of $280,000 to purchase a home valued at $400,000, your LTV ratio would be ($280,000 / $400,000) x 100 =70%.
The maximum LTV in Singapore varies depending on the type of home you own and how many unpaid mortgages you have. The maximum LTV is 75% for bank loans, whereas the maximum for HDB concessionary loans is 80%.
The table below sums this up.
Bank Loan LTV Limits
|1st Housing Loan||2nd Housing Loan||3rd Housing Loan|
|LTV limit: Individual borrowers||75%||45%||35%|
|LTV limit for a tenure of 30 years (or if the borrower's age is greater than 65 at the end of the loan)||55%||25%||15%|
|LTV limit: Non-individual borrowers||15%|
Bank Loan Vs HDB Loan
The major differences between a bank loan and a HDB loan lie in the option to pay off the loan early, interest rates, and downpayment. Other differences are as follows:
|Bank Loan||HDB Loan|
|LTV Limit||Max 75%||Max 80%|
|Downpayment||Depends on the number of home loans you have (see previous table)||20% upfront|
|Mortgage Servicing Ratio||30%||30%|
|Interest Rates||Floating or fixed||0.1% above the CPF interest rate and subject to quarterly review|
|Fees||Fees apply for:|
Refinancing within the lock-in period
|No penalty for early repayment|
|Loan Tenure||Up to 30 years for HDB flats and 35 years for private property||Up to 25 years|
|Loan Switch||Cannot switch to HDB loan||Can switch to bank loan|
Get A Housing Loan You Can Repay
The LTV ratio determines how the housing loan amount you can get from a lender. However, you can aim to get a LTV below 80% for favourable repayment terms.
By learning how much you can afford, you will get the answer to the question “how much housing loan I can take?”.
It helps to choose an affordable home and make a large downpayment to reduce the loan amount you’ll need.
If you need urgent financial assistance, try licensed money lender U Credit. We offer fast and secure loans.