Whether you are a cash-strapped homeowner or an everyday Singaporean searching for a loan to empower yourself to acquire a new home or improve your current one, some banks in Singapore can help you.
Many of them understand that the financial side of life is unpredictable and are willing to walk with you throughout this journey. That’s great, but how much loan can I get from bank in Singapore?
If you are asking this important question, you are in the right place. The correct answer depends on various factors that this article covers in great detail.
Once you understand what taking a home loan from a bank entails, you’ll be able to calculate how much you qualify to get.
How Much Can You Borrow For Your Home Loan?
Most borrowers think that getting a home loan from a bank in Singapore is difficult because of the risks involved, so let’s focus on how to do it quickly and get the amount you need.
If you can get a home loan, nothing can stop you from securing a personal or business loan because you can apply many of the tricks we’ve covered here to achieve the same goal.
I know you are still asking the critical question, ‘how much loan can I get from bank?’. In the following few sections, we shall look at factors that influence the amount you can get from a bank in Singapore to help you understand this well.
Before that, let’s consider the legal loan curbs to help you see the maximum amount you can get.
For a private bank loan, you qualify for a maximum of 75% of you the property’s selling price or value, whichever is lower.
On the other hand, you can get up to 80% of your HDB flat’s selling price or value, whichever is lower, if you take a HDB loan.
You can use your private bank loan to purchase a private property, executive condominium, or HDB flat. You can still use cash and your CPF Ordinary Account to settle the 25% balance.
As you can see, the maximum amount you can get from a bank in Singapore to purchase your home, also known as Loan-to-Value (LTV) ratio, is 75% of its value or selling price.
Note that the Monetary Authority of Singapore (MAS) regulations don’t guarantee the maximum home loan, meaning your bank can give you a lower amount if it feels that is fair and appropriate.
Since LTV is an essential factor that can determine how much you get from a bank in Singapore, let’s look at it in detail right away.
What Is The LTV Ratio In Singapore?
Banks and other lenders use the LTV ratio to mean the quantitative relationship between a loan and the property purchased, expressing the number of times one is contained in the other.
This term can be used in many transactions, but it’s common in real estate transactions where the property in question is usually a tangible asset.
A good example is the 75% we’ve talked about above. It’s the loan-to-value (LTV) ratio.
If the seller quotes an amount above the property’s value, it doesn’t affect the LTV in Singapore. The difference between the two figures is known as Cash Over Valuation (COV).
Why Is The Loan-To-Value Ratio Important?
The loan-to-risk ratio represents the amount of risk that the lender takes. Loans with low LTV ratio require borrowers to put down large downpayments.
Individuals with the ability to comply with this requirement typically have reliable sources of income and are committed to pursuing their dream of owning the property. They can’t imagine defaulting on the loan due to the risks involved.
At the same time, lenders prefer loans with low LTVs because they know they can recover their losses relatively quickly if the borrower defaults.
How Does LTV Ratio Work?
If you are asking how the LTV ratio works, remember you can calculate it manually now. To get an accurate ratio, divide the loan by the property’s value.
Let’s use the same example above for emphasis.
Let’s say you want to buy a flat using a bank loan. You already know that the LTV is 75%. After professional evaluation, you learn that the home is worth $500,000. However, the seller quotes $550,000. The difference or the COV is $50,000.
So when calculating your LTV, you exclude the COV. In other words, you should pay it in cash.
After subtracting it from the actual sale price, multiply the property’s value ($500,000) by 75 and divide the product or the answer by 100. This way, you’ll get 75% of $500,000, which is $375,000.
As we said earlier, MAS regulations don’t guarantee the maximum LTV. In short, the bank will conduct an independent audit to ascertain whether you qualify for this ratio and take the necessary action.
If your bank deems your case is high-risk, it can offer you a lower LTV ratio, like 30% of the property’s value. This figure shows that the lender is ready to give you 30% of the property’s value.
Lenders use LTV to assess risk. So, if you understand how it can impact your application, you can answer the all-important question, ‘how much loan can I get from bank,’ with greater ease.
Note that a low Total Debt Servicing Ratio (TDSR) or poor credit score are some of the factors that can adversely affect your ability to get the highest amount of loan possible from a bank (more on that next).
What Is The Total Debt Servicing Ratio For Your Home Loan In Singapore?
The Singapore government introduced the TDSR as a cooling measure to limit individuals from spending too large amounts of their salaries on debt repayments. Lenders like banks usually use it to measure the ability of borrowers to service their debt obligations.
Here is how TDSR works in brief:
- If TDSR calculations show that borrowers have high TDSR, their bank can decline their applications. This prevents them from taking debt obligations they can’t service.
- On the other hand, if the calculations reveal borrowers have low TDSR, the bank calculates the Loan-To-Value ratio to determine how much it can offer without taking unnecessary risks.
How To Calculate Your Total Debt Servicing Ratio
To calculate your TDSR, take your gross monthly income and subtract your monthly debt payments.
What have you gotten? Let’s say we want to calculate your friend’s TDSR. We can assume her monthly gross income is $7,000, and monthly debt payments total $2,000. Here, we get $5,000 after subtracting the debts from the monthly income.
According to information on the Monetary Authority of Singapore’s official website (last revised 16 Dec 2021), the current TDSR threshold is a maximum of 55% of the borrower’s salary.
However, if a borrower’s existing debt obligation is equal to 10% of their salary, the maximum property loan they can get is based on 45% of the income. However, individuals whose loans need to meet these requirements have no legal rights to access these loans.
Based on this information, let’s continue calculating your friend’s TDSR.
- Relying on the publicly available MAS rate, we multiply 55% by $7,000 and get $3,850, the maximum you can service per month.
- The friend is already spending $2,000 monthly on debts, meaning she only has an extra $1,850.
- Therefore, the borrower’s current TDSR is $1,850.
Additional Factors Influencing TDSR Calculations
A bank can also consider your ability to manage stress when calculating your TDSR. It can increase your interest rate artificially and make a decision based on your reaction.
Your income’s periodicity also matters. If you get variable earnings, the bank might reduce the income used for the calculations by up to 30%.
How To Increase Your LTV Ratio to Borrow More
You can get the maximum loan by increasing your LTV ratio. A higher percentage means your bank is willing to finance a significant fraction of your home loan.
Find some of the best ways to increase your LTV ratio below.
Clear Outstanding Home Loans
Did you know that a single unpaid home loan significantly lowers the LTV ratio for your new loan?
Yes, it brings it down to 45%. If you have two outstanding home loans, it reduces further to 35%. Note that if that loan tenure is more than 30 years and your age at the end of the term will be 65 or more, the ratio can be much lower than this.
You can increase your LTV by clearing the existing loans before applying for your next loan. Since this depends on your current financial ability, you might have very little to do but accept the low rate, especially if you are yet to know that there are other lending options you can consider.
Purchase Property In the Best State And A Strategic Location
Banks consider the property’s state and geographical location when calculating LTV. This helps them determine the property’s economic value and the security of their money.
So instead of buying a home with significant defects or located in a foreign country, you can find a high-value option in Singapore.
If this works for you, you can increase the ratio and the amount you qualify to receive without any issues.
Improve Your Credit Score
Banks check credit scores to see whether their customers are creditworthy. If you have a bad credit score, you have to do something.
To prevent the chance is getting lower LTV due to poor credit ratings, repay your loans on time, avoid making multiple debt inquiries frequently, and close unnecessary credit accounts. It’s sometimes a long process, but you can succeed after a short while.
Getting A Large Loan Amount In Singapore Possible
The main question we’ve answered in this article is, ‘how much loan can I get from bank.’ If you live in Singapore, you can see that banks can offer you loans.
However, they have stringent requirements. So, in some cases, it might make sense to look for a more flexible alternative with fewer requirements.
Contact us now, and we’ll get back to you immediately to arrange an appointment.