Buying a home is an important milestone and a long-term financial commitment. So when obtaining a mortgage, the first thing you will ask yourself is likely: “how much housing loan can I get?”
However, before determining how much you can borrow, you need to determine how much you can afford.
Licensed money lenders and banks would love to give you large amounts of cash, but they would also like to know your repayment ability, or whether you can make housing loan repayments.
Since the price of a home can be expensive, even a small change in percentage for loan rates can make a big difference.
This article serves as a guide on how much you can borrow so you can start planning to live in your dream home.
Buying a home is a big investment that requires planning. Before deciding how much you can borrow, the vital thing to consider is how much you can afford to pay for your new home.
To know how much you can afford, here are the things you should check:
When determining the loan amount you can afford for your home, the first thing to do is to check if you have enough cash to cover the downpayment.
Upfront costs may include stamp duty, renovation costs, agent commission fees, option fees, legal costs, and valuation fees.
You need to investigate the property’s purchase price and check the amount of savings you have on hand.
You can include savings in your CPF account, total proceeds from selling your home (if applicable), and savings from your monthly income.
You should be ready to make monthly payments when you obtain a home loan. The payments include the principal payment and interest payment.
Generally, your monthly installments will be based on the amount you borrow and the interest rate of the loan.
When checking loans and comparing their interest rates, you should note that a longer loan tenure reduces the installment you pay every month.
But in the long run, it will increase the overall amount you pay for the loan’s interest. Note that interest rates change, so do not use the bank’s introductory rates as a gauge – but the interest rate in the coming years. This is crucial.
How much housing loan can I get? This is a question that troubles many when they need to purchase a home.
After knowing how much you can afford, you should decide how much you should borrow.
You should know how much homes cost, and the accompanying risks of getting a housing loan. You also have to be aware of banks and HDB’s lending guidelines.
Although some lenders may decide to lend you higher amounts for larger profits, they still have to follow these rules.
A bank or HDB will take the Mortgage Servicing Ratio (MSR) into consideration. It indicates the amount of your total monthly income used to service your HDB mortgage.
The MSR sets the maximum percentage of your income you should be spending on a HDB mortgage at 30%. You can know your MSR by dividing your monthly mortgage payment by your total monthly income.
Another factor is the loan-to-value (LTV) ratio, which is obtained by dividing the loan you wish to get by the home’s total price. The LTV depends on the home type and the number of pending mortgages you have.
Apart from these ratios, your other debts also determine how much you can borrow. The Total Debt Servicing Ratio (TDSR) determines your ability to repay the monthly loan installments based on the amount of debt you already have. It is currently set at 55%.
Banks and HDB will also check the pending lease on the property, your age, as well as your credit history.
While acquiring your new home, some mortgage terms can confuse first-timers.
The MSR and TDSR are important terms that you must understand when obtaining a loan. The MSR restricts how much of your monthly income you can spend paying a HDB mortgage, with its 30% cap.
The TDSR, however, restricts how much of your monthly income you can utilise to service all debts. It is capped at 55%.
If you are purchasing a property using a bank loan, you first need to go through MSR followed by TDSR calculations.
TDSR and MSR were established to prevent homeowners from over-leveraging, as many obtained big home loans but couldn’t afford them.
Another problem was the rising cost of property because there were no loan limits.
As mentioned, the LTV ratio is the amount you can borrow to service your property. It is an assessment that determines the loan amount based on the property’s value.
It is calculated by dividing the loan you wish to get by the home’s total price. For instance, an LTV ratio of 80% means that you can borrow up to 80% of the total price of your home.
The LTV limit determines the total loan amount you can borrow for a property. It is derived after considering your:
If you have a higher LTV ratio, it could pose risks because of the higher loan amount, since the borrower has a higher percentage of the total value of the property.
For instance, if you have a LTV of 45% of your property loan, you owe a smaller percentage of the value of your HDB loan compared to another person who has 75%.
In other words, borrowers with a lower LTV ratio are less likely to default on their loans.
Another instance is if you are buying a house worth $700,000. But the actual price is $715,000.
The HDB Concessionary loan allows you to borrow a maximum of $560,000, which is 80% of $700,000.
The difference of $15,000 is called the Cash Over Valuation (COV). You can pay up to $140,000 (20% of $700,000) through your CPF OA or cash.
However, the $15,000 COV will not be covered – you will have to pay it in cash.
If you purchase a HDB flat in Singapore, the maximum loan duration is capped at 30 years. But if you apply through HDB directly, the tenure will be reduced to 25 years.
On the other hand, loan duration for non-HDB properties is capped at 35 years. This is important as it is a major factor that affects the LTV ratio.
Non-landed properties in Singapore are categorised as either HDB or non-HDB.
When determining the LTV limit, lenders will consider a borrower’s age.
If the borrower’s age and loan duration go over 65 years, it will lead to a lower LTV ratio, hence a lower housing loan. This increases the upfront fees needed to purchase the property.
Because a borrower’s age is a major consideration for a housing loan, older borrowers might be at a disadvantage more than younger ones.
That’s why it is recommended to start young when investing in real estate.
The number of loans you are currently servicing is another significant factor affecting an LTV ratio. The LTV limit will be significantly lower than a single loan if you have two or more housing loans.
Most banks offer loans depending on your income, debts, and credit history. However, even if you qualify for the highest amount, think first before borrowing more than you need.
There is no guarantee that you will receive the cash you need. However, to improve the probability of getting a higher amount from a bank, you should follow these few tips:
Many first-time homeowners wonder whether to settle for a bank loan or HDB loan. The good thing with taking a HDB loan is that you can part with less cash as a downpayment.
As of 30 Sep 2022, the maximum LTV ratio for a HDB loan is 80%, therefore, you can borrow up to 80% of your flat’s price.
You can settle the remaining 20% with your CPF Ordinary Account (OA) savings or cash.
This suggests that you can buy a flat without parting with any money upfront from your pocket. However, this is possible only if your CPF OA savings are enough to cover the full downpayment.
You can buy a private property with a bank loan, not only a HDB flat.
Banks utilise fixed and floating interest rates for their home loans. As a homeowner, you must decide which one you prefer.
HDB loans are beneficial when you have less cash on hand, as they allow you to pay the full downpayment using your CPF account.
As you can see, one significant factor differentiating bank and HDB housing loans is the LTV ratio.
The HDB Concessionary Loan has a maximum LTV ratio of 80%. But for a bank loan, the maximum you can get is 75% if you have no outstanding home loans.
You can pay the 5% using cash, while the 20% can be serviced through cash or your CPF OA savings.
However, you may not always qualify for the maximum LTV since HDB or banks have no obligation to offer you the full amount.
They can decide to offer a lower amount or reject your application. However, you can get other lenders you can rely on.
Licensed money lenders such as Katong Credit are a feasible option because they have faster approval processes than banks.
They also have to follow the rules and regulations set by the Ministry of Law. Before loan approval, they have to undergo necessary documentation and verification processes before advising you on your loan options.
When getting a housing loan, your credit history, the LTV ratio, MSR, TDSR, and your ability to repay affect how much you can borrow.
So check the factors affecting your loan amount to ensure you get a loan you can afford to repay. Different lenders have different terms and offers, so only get the amount you need.
Are you looking for a housing loan? Get help from Katong Credit, a licensed money lender that can give you a list of options and advice based on your specific financial situation.