How Much Housing Loan Can I Take?

Written by Shannon Wong on May 2, 2024

Key Takeaways

In Singapore, the amount you can borrow for a housing loan depends primarily on the Loan-to-Value (LTV) ratio, which is 75% for bank loans and 80% for HDB loans. Your loan amount is also influenced by your income, financial commitments, and credit score. Higher incomes and better credit scores typically allow for larger loans with potentially better terms, while a solid understanding of LTV ratios and effective financial planning can significantly impact the type of home you can afford and your long-term financial health.

Buying a home in Singapore is a significant milestone, often involving a substantial financial commitment. For many, this process entails securing a housing loan, which can be challenging due to the numerous factors and calculations.

Understanding how much you can borrow is crucial as it impacts the type of home you can afford and your financial stability in the long run. This article explains the process of determining your housing loan eligibility, focusing on essential aspects such as Loan-to-Value (LTV) ratios, comparison between HDB and bank loans, and other vital factors that influence your borrowing capacity.

Whether you are a first-time home buyer or looking to invest in another property, this guide will provide the necessary insights for getting a housing loan in Singapore.

What is the LTV Ratio?

The Loan-to-Value (LTV) ratio is a financial term used by lenders to assess the risk of granting a housing loan. It is calculated by dividing the loan amount by the appraised value of the property and is expressed as a percentage.

The LTV ratio represents how much of the property’s total value your loan will cover, with the remainder typically paid as a downpayment.

Significance of the LTV Ratio

The LTV ratio directly influences the maximum loan amount that one can secure. A lower LTV ratio generally means that the borrower is less risky to the lender, which could lead to more favourable loan terms.

In Singapore, the LTV ratio also serves as a regulatory measure to ensure that borrowers do not over-leverage themselves when purchasing property.

Maximum LTV Ratios Explained

Bank Loans vs. HDB Loans

The maximum LTV ratio in Singapore differs based on whether you secure a bank or an HDB loan. The maximum LTV ratio for bank loans is currently capped at 75%. This means you can borrow up to 75% of your property’s value from the bank.

The LTV ratio for HDB loans can reach 80%, reflecting the government’s intent to make public housing more accessible.

Impact of LTV Ratios on Loan Amounts

The LTV ratio not only affects how much you can borrow but also impacts your upfront costs. For instance, with a 75% LTV ratio, you would need to pay at least 25% of the property’s price upfront, which includes a minimum of 5% in cash.

The remaining can often be paid using CPF funds. The specific requirements can vary, highlighting the importance of understanding how LTV ratios work in relation to your overall financial planning for home buying.

How to Calculate Your Eligible Loan Amount

Calculating the eligible loan amount is crucial for anyone considering buying a home. It will help you set realistic expectations and plan your finances accordingly.

Step-by-Step Calculation of Loan Eligibility

  • Determine the Property’s Appraised Value: This is typically done by the lender or an independent appraiser. The appraised value will serve as the basis for calculating the LTV ratio.
  • Apply the LTV Ratio: If you are applying for a bank loan or an HDB loan, use the maximum LTV ratio to the appraised value. This is often 75% for bank loans, and for HDB loans, it is up to 80%.
  • Calculate the Maximum Loan Amount: Multiply the appraised value by the LTV ratio to get the maximum loan amount you might be eligible for.
  • Consider Your Downpayment: Subtract the maximum loan amount from the total property value to determine how much you need to pay as a downpayment.

Example to Illustrate

Imagine you are interested in a property valued at $500,000. If applying for a bank loan with an LTV ratio of 75%, your maximum loan amount would be:

  • Appraised Value: $500,000
  • LTV Ratio: 75% (or 0.75)
  • Maximum Loan Amount: $500,000 x 0.75 = $375,000

Your downpayment will then be $500,000 – $375,000 = $125,000, of which at least 5% ($25,000) must be paid in cash. The remainder can be covered using CPF savings.

Factors Influencing Your Loan Amount

Several factors can influence the loan amount you are eligible for beyond just the LTV ratio:

  • Income and Financial Commitments: Lenders will assess your income and other financial obligations to determine your ability to service the loan. This includes your Total Debt Servicing Ratio (TDSR), capped at 55% in Singapore.
  • Credit Score: A good credit score can influence the loan terms, allowing for a higher loan amount or more favourable terms.
  • Age and Loan Tenure: The maximum loan tenure is often capped based on the borrower’s age, affecting how much one can borrow. The tenure might be limited in Singapore because it does not extend beyond the borrower’s 65th birthday.

Looking to secure a housing loan in Singapore? At 1AP Capital, we offer personalised loan solutions to fit your unique needs. Whether buying your first home or investing in property, our expert team is here to support you every step of the way. Start your application process with us today and make your homeownership dreams a reality.

Comparing HDB and Bank Loans

When considering purchasing a home in Singapore, one of the most significant decisions you’ll make involves choosing between an HDB loan and a bank loan. Each option has its distinct features, benefits, and limitations.

HDB Loan

  • Interest Rate: HDB loans have a more stable interest rate, generally pegged at 0.1% above the CPF Ordinary Account rate, currently making it about 2.6%.
  • Downpayment: The minimum downpayment for an HDB loan is 20%, which can be fully paid using CPF savings, making it more accessible for first-time homeowners.
  • LTV Ratio: HDB loans offer a higher LTV ratio of up to 80%, allowing borrowers to finance a more significant portion of their home purchase.
  • Borrower Eligibility: Generally more inclusive, targeting first-time homebuyers and those who do not own other properties.

Bank Loan

  • Interest Rate: Initially, interest rates are typically lower but variable, depending on market conditions. Current rates can range from 2.950% to 5.444%, depending on the type of property and payment duration.
  • Downpayment: Requires a minimum of 5% in cash, with an additional 20% that can be paid using a combination of cash and CPF.
  • LTV Ratio: Capped at 75% for the first loan, meaning you must finance at least 25% of the property value out-of-pocket.
  • Borrower Eligibility: Requires a good credit score and often more stringent financial scrutiny.

Table: Overview of HDB vs. Bank Loans

CriteriaHDB LoanBank Loan
Interest RateFixed at approx. 2.6%Variable, currently between 2.950% to 5.444%
Downpayment20% (can be paid entirely with CPF)5% cash, 20% total (cash or CPF)
LTV RatioUp to 80%Up to 75%
Borrower EligibilityMore inclusive, aimed at first-time buyersRequires good credit score

Choosing the Right Loan Type

The decision between an HDB and a bank loan largely depends on your financial situation, risk tolerance, and long-term plans:

  • HDB loans are more suitable for those who prefer stability and potentially have less upfront cash requirements.
  • Bank loans may appeal to those looking for lower interest rates and can manage the payment variability.

When choosing between these options, it’s crucial to carefully assess your financial health and consider current and future circumstances. Consulting with a financial advisor or mortgage specialist can provide personalised insights and help you make an informed decision.

Strategies to Increase Your Loan Eligibility

Improving your eligibility for a housing loan is crucial, especially if you aim to maximise your borrowing potential. Here are some practical strategies to consider:

Improve Your Credit Score

  • Check Your Credit Report: Regularly review your credit report to ensure no inaccuracies or unresolved issues might negatively impact your score.
  • Pay Your Bills on Time: Consistently paying your bills on time can significantly improve your credit score, demonstrating your reliability to lenders.
  • Reduce Existing Debt: Lowering your debt levels before applying for a housing loan can improve your debt-to-income ratio, making you a less risky borrower.

Manage Your Financial Records

  • Stable Employment: Demonstrating a stable job and a steady income reassures lenders of your ability to repay the loan.
  • Regular Savings: Build a habit of regular savings that can be documented. This helps accumulate the required downpayment and shows financial discipline.
  • Consolidate Your Finances: Consider consolidating your finances into one or two accounts for better manageability and transparency.

Optimise Your Loan Tenure

  • Choose Appropriate Tenure: Opting for a loan tenure that matches your career span can optimise your monthly payments without overextending yourself.
  • Consider Your Age: To avoid financial strain during your non-working years, ensure the loan tenure does not extend beyond your retirement age.

Increase Downpayment

  • Save for a Larger Downpayment: Increasing your downpayment reduces the loan amount needed and the LTV ratio, thereby reducing the lender’s risk and potentially securing better loan terms.
  • Gifts and Grants: To increase your upfront payment capacity, utilise monetary gifts from family or government grants available for first-time homebuyers.

Financial Planning

  • Budgeting: Develop a comprehensive budget that includes potential future expenses like home renovations or maintenance to ensure you can comfortably manage your mortgage payments.
  • Get Pre-approved: Seek pre-approval for a housing loan to understand your financial standing and borrowing capacity before shopping for a home.

Your Path to Homeownership

As we conclude the financial requirements of purchasing a home in Singapore, it’s clear that preparing adequately can ease the process. Here’s a recap of the key points:

  • Understanding the LTV Ratio is crucial for determining your borrowing capacity and required downpayment.
  • Choosing between HDB and bank loans depends on your specific financial situation and the benefits of each option.
  • Strategies to Improve Loan Eligibility, such as improving your credit score and optimising your financial records, can greatly increase your chances of obtaining a better loan.

Ready to Take the Next Step?

If you are considering buying a home and need expert guidance on the best loan options, 1AP Capital is here to assist. We offer tailored loan solutions that cater to your individual needs, helping you move closer to purchasing your dream home with confidence.

Apply for a loan with us today and take a significant step towards making informed, beneficial housing loan decisions.

 

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