How Much Housing Loan Can I Take?

Regardless of whether you’re a seasoned buyer or a newbie figuring out mortgages, one particular question is almost routine – how much housing loan can I take in Singapore?

The foremost issue Singaporeans face while trying to buy a property is the initial cash outlay. As even a tiny percentage of a property’s value can amount to a huge sum, most borrowers aim to reduce their downpayment.

In this guide, you’ll learn about the LTV ratio, how much you can borrow as a home loan, how much mortgage you can afford, and the primary differences between HDB and bank loans.

This will help you figure out the answer to the burning question: how much housing loan can I take?

What Is The LTV Ratio?

The total amount you can borrow to finance your property is called the loan-to-value (LTV) ratio. For instance, an LTV ratio of 80% suggests that you can borrow up to 80% of your property’s price or value, whichever is lower.

In addition, if a piece of real estate is priced higher than its original value, this price difference is known as Cash Over Valuation (COV).

On 16 Dec 2021, the Singapore government reduced the maximum LTV ratio for HDB loans from 90% to 85%. On 30 Sep 2022, this was again lowered to 80%.

HDB loans are used to finance HDB properties, which are flats built by the Housing & Development Board of Singapore.

Simply put, the maximum loan for HDB properties in Singapore now cannot exceed 80% of its price or value.

However, the remaining 20% can still be paid using your CPF Ordinary Account (OA), cash, or both.

On the other hand, the maximum LTV for bank loans is capped at 75%. Interestingly enough, 5% of the remaining sum must be paid in cash, while you can pay the other 20% through your CPF OA, cash, or both.

It’s worth noting that the LTV ratio depends more on the financial institution from which you’re taking the loan, than the property you’re purchasing.

What To Know About The Maximum LTV Ratio

As mentioned, the maximum LTV for bank loans is 75%, while the maximum LTV for HDB loans is 80%.

Nevertheless, licensed money lenders and banks don’t need to give you the maximum LTV on a loan. They possess the authority to reduce the LTV if they deem it appropriate.

The following factors can reduce the maximum LTV ratio you’re eligible for.

Outstanding Home Loans

If you have an outstanding home loan, the LTV ratio on your second home loan is capped at 45%. You must pay half of the remaining 55% in cash. You can pay the other half using a combination of cash and CPF OA.

In addition, if you’re looking to take out a third home loan on top of two outstanding home loans, your LTV cannot go beyond 35%.

Remaining Lease On The Property

If a property has 36 to 40 years left on the lease, the maximum LTV generally doesn’t exceed 60%. Nonetheless, you can still pay 15% of the property’s value or price using your CPF OA.

However, properties with 35 years or less remaining on the lease rarely become eligible for home loans.

On top of that, if the lease goes under 30 years, you aren’t eligible to use your CPF OA funds to pay any part of the loan.

Location And Condition of Property

The LTV ratio on your loan can decrease substantially depending on the location and state of the property. If your property is situated on the outskirts or in an unsavoury area, you may receive a lower LTV limit.

Properties in poor condition or with significant defects or malfunctions will also get a lower LTV ratio.

Age And Loan Tenure

According to the guidelines laid down on 6 Jul 2018, the LTV ratio for loans to finance private properties can’t be more than 55% if the loan tenure is above 30 years or if the sum of the tenure and your age is more than 65 years.

However, for a HDB flat, the maximum LTV is 55% only if the loan tenure exceeds 25 years or if the sum of the tenure and your age is more than 65 years.

Note: The maximum age for housing loans in Singapore is 70 to 75 years for a few organisations, while the other money lenders apply a cap of 60 to 65 years.

Credit Score

Upon applying for a home loan, you can be sure that the lender will check your credit history and credit score.

If you carry a record of non-repayment or late repayment of loans, you’re considered a credit risk for the lender.

As a result, financial institutions might lower your maximum LTV from 75% to 65%, for example.

To prevent this, make sure you repay your loans on time, regardless of their type.

Why Should You Lower The LTV Ratio?

Although the property you’re financing is crucial in determining the right LTV for you, an ideal LTV is usually on the lower end.

As it presents a lower risk to a lender, a lower LTV ratio can help you acquire more desirable terms and lower interest rates.

A higher LTV is suitable for those who are looking to buy a property as soon as possible. In that case, they don’t have much choice in the matter.

But if you’re in no hurry to obtain your preferred property, a lower LTV ratio results in shorter loan durations and minimal interest charges.

Consequently, you will benefit from making monthly repayments quickly and maximising your financial freedom.

In addition, lower interest rates suggest comparatively lower monthly repayments, meaning more money to save for the future or other purposes.

Interestingly, licensed money lenders like Katong Credit offer reasonable terms and low interest.

How To Lower Your LTV Ratio

LTV ratios play a fundamental role in the application process for a home loan as they can help you save both money and time.

Here are a few ways to lower your LTV ratio.

Save For A Bigger Downpayment

If you cannot afford a massive chunk as a downpayment, it’s better to take a step back and not hurry to buy a home. Be patient and wait until you’ve saved enough to pay a substantial downpayment.

This tip is by no means a suggestion to give up on your dream of buying a home. On the contrary, it’s to help you enjoy your new home without worrying about finances once you save enough for a substantial downpayment.

Fortunately, a few licensed money lenders like Katong Credit in Singapore might be more flexible with regard to loan terms and interest rates.

Choose An Affordable Home

If you cannot save up for a large downpayment, it might be time to explore your options and look for more economical properties.

Purchasing an affordable home means you can borrow less money and reduce your LTV ratio.

You may need to give up on your dream home in this case, but it’ll allow your savings pay a significant part of the purchase price.

How Much Mortgage Loan Can You Afford?

Once you’ve got an idea of how much you can pay upfront for your dream home, it’s time to figure out how much you can and must borrow.

Apart from LTV, a couple of factors come into play while deciding how much mortgage loan you can afford.

Mortgage Servicing Ratio (MSR): It’s roughly the amount of your gross monthly income that goes into home loan repayments for HDB properties. You can estimate it by dividing your monthly mortgages by your net monthly salary. It is capped at 30%.
Total Debt Servicing Ratio (TDSR): Unlike MSR, the TDSR considers all your monthly loan repayments, not just your mortgage payments. The TDSR limit is 55% of your monthly income.

HDB Loan Vs Bank Loan

If you’re confused between a bank loan and HDB loan for purchasing your home, the primary parameters you must consider are downpayment, loan repayment flexibility, and interest rate.

You can compare the two types of loans from the information given below.

HDB Loan

LTV limit: Up to 80%
Downpayment: 20%
MSR: 30%
TDSR: N.A.
Interest rate: 2.6%, pegged at 0.1% above the prevailing CPF interest rate (reviewed quarterly)
Maximum loan tenure: Up to 25 years
Extra fees: No penalty for early repayment

Bank Loan

LTV limit: Up to 75%
Downpayment: Depends on the number of your pre-existing property loans
MSR: 30%
TDSR: 55%
Interest rates: Can be fixed or floating, but usually lower than the HDB loan
Maximum loan tenure: Up to 30 years for HDB homes and 35 years for private properties
Extra fees: Penalty for early repayment and refinancing within the lock-in period