Buying a home is a dream you and I have. However, achieving that dream is a complicated journey.
As you’d know, homes in Singapore are expensive. Even if you have the funds, some associated costs may force you to borrow a home loan.
A home loan is a good option. It allows you to plan for your finances better and avoid spending way too much than you’d anticipated.
But how much loan can I get from bank is the main question. While it isn’t possible to determine the exact amount, a few factors, such as your loan-to-value ratio (LTV), can help you get a good estimate of your loan amount.
By the end of this post, you’ll get a better understanding of the amount you can get, how LTV ratio and Total Debt Servicing Ratio (TDSR) influences your loan amount, what you can do to lower your LTV ratio, and how to use an online home calculator.
To put it simply, how much you can borrow for your home loan depends on the following:
All these factors will determine your ability to repay the loan, which will determine the loan amount you can borrow.
For example, two things are possible if your income is high, you have the savings and investments to support your purchase, and your debt obligation is low.
One, you can qualify for a large home loan amount.
Two, you may only need to borrow a small loan amount. Later on, we will tell you why you should opt for this.
That said, there’s no standardised loan amount you and I can borrow from banks in Singapore. This is because our financial situations are different, as are our needs.
The good thing with this is that you can get a loan and loan terms that are structured to fit your situation. This ensures you get an amount you can service without going into a financial menace.
When you borrow your home loan from a bank in Singapore, the maximum amount you can get is an LTV of 75% of the home’s purchase price.
For example, let’s say you want to purchase a home in Holland Village valued at $450,000. When you take a home loan from a bank, you will get a loan amount of $337,500.
Alternatively, you can get a HDB loan that offers an LTV of up to 80% of the purchase price. In this case, out of $450,000, you will get a HDB loan of $360,000.
While HDB loans are a good option when you need more funds, there’s a limitation in that you can only use the loan to purchase a HDB flat.
On the other hand, a bank loan is more flexible; you can purchase HDBs and other private properties.
A major drawback with the two options is that the edibility criterion is complex, including TDSR.
Even if you meet each requirement, your chances of getting the exact 75% or 80% loan value are not guaranteed. Banks and HDBs can decide to offer a lower percentage.
The LTV ratio is a loan amount expressed as a percentage of the home’s actual value. So as you try to find out how much loan I can get from bank, keep in mind that lenders use LTV to determine the loan amount you’ll be offered.
It also determines the downpayment you’ll need to put forward in cash or with your CPF funds.
Lenders may also use LTV alongside other factors to determine your lending risk.
To determine your LTV, divide the loan amount by the property’s market value. That is, LTV = (loan amount/ property value) x 100
For example, let’s say:
LTV= ($250,000/ $450,000) x 100
LTV = 55.6%
Banks prefer a lower LTV ratio because it represents low risk. If you borrow an LTV of 75% or 80% with HDB, your lender may lose their funds in case of default.
This is why we said earlier that you might not qualify for the maximum LTV. Your lender may opt to lower it.
Besides risk, your income, the condition of your proposed home, and other outstanding home loans may affect your final LTV ratio. A low-income and an old home will warrant a low LTV of about 50%.
In addition, if you have a pending home loan, your LTV will be 45% or lower. If you have two or more pending home loans, your LTV will be reduced to 35% or lower.
However, a low LTV is desirable because it increases the chances of your loan application being approved.
A low LTV also shows that you have the funds to make a downpayment for the home. This may lead to your lender charging you a lower interest rate as there is less risk in lending to you.
In a section below, we’ve detailed how you can lower your LTV ratio.
The TDSR is a portion of your gross monthly income that goes towards repaying your outstanding debt. This includes personal loans, credit card loans, and the home loan you’re applying for.
TDSR is a lending metric that determines how much loan I can get from bank. Lenders use it to assess your ability to service the loan.
In Singapore, TDSR is capped at 55%. If it is higher than 55%, it conveys that you have a huge debt burden and that your ability to repay the home loan is low.
On the other hand, with a low TDSR, you’re able to make monthly payments without compromise.
To calculate your Total-Debt-Servicing ratio, you divide your gross monthly income by your monthly debt payments. That is, TDSR= Gross Monthly Income/ Monthly Debt Payments
For example, suppose:
Your TDSR= $4,500/$1,500
In addition, other considerations may affect your TDSR, including:
The periodicity of income refers to constant income received, be it weekly, monthly, quarterly, etc.
This factor mostly applies to self-employed Singaporeans. The probability of you consistently receiving the same amount of income is unlikely. This is because of different reasons, such as the state of the market.
When your income fluctuates, it may affect your ability to meet your debt obligations, including the home loan you are applying for.
As such, your lender may reduce your expected income by 30% to determine your TDSR.
If you need help determining how much loan I can get from bank, get in touch with us at Katong Credit, a licensed money lender in Singapore, and one of our experts will guide you.
Lenders want to ensure you can service the loan in the long-term even if the market rates change. Thus, they will calculate your TDSR with increased interest rates for your home loan and then gauge it with your gross monthly income.
There are a few ways to lower your LTV ratio, these are:
The higher the value of your proposed home, the higher the loan amount you’ll need to borrow. This will lead to a higher LTV ratio.
To lower it, consider purchasing a more affordable or cheaper home. While this may differ from what you want to hear, it is a financially sound decision since you’ll purchase your home at a lower price.
With an affordable home, you’ll not need to borrow a huger loan amount, more so if you’ve saved and planned for it.
Before you purchase a home, take time to plan and save for it. As we said earlier, you’ll only need a small loan if you have enough savings, income, and investments to support your home’s purchase.
You can use your saved funds to make a huge downpayment for your home and reduce the needed loan amount. This, in turn, will reduce your LTV ratio. A lower LTV ratio enables you to get favourable loan terms, such as lower interest rates.
A home loan calculator is an online tool that enables you to estimate the loan amount you’ll get. It allows you to vary the loan terms, such as the tenure and interest rates, to find what works for you.
To use one, you key in your desired:
These numbers will then give you the following:
You can use the information to decide which loan amount and tenure fits your financial situation.
Owning a home is a major milestone. It provides you with peace, comfort, and safety.
However, the acquisition process is hefty and can be financially draining.
You need to plan and save for it, and if you’re short of funds, you can borrow a home loan from a bank.
But how much loan can I get from bank will be determined by factors such as your LTV ratio, DTI ratio, and income.
You can also use a home loan calculator to find loan terms that will fit your needs.
If you need financial assistance, apply for a loan with us at Katong Credit. We are a licensed money lender that offers fast loans with flexible payment terms.