Whether you’re a first-time buyer or an old hand at mortgages, here’s a useful summary on how home loans in Singapore work and how to calculate your borrowing limit.
One of the biggest concerns Singaporeans have when buying a home is the initial cash outlay. Even a small percentage of the property value can be a massive sum, so most borrowers want to minimise their down payment. Here’s a rundown on how much you can usually borrow:
What Is A Loan-To-Value (LTV) Ratio?
The amount you can borrow to finance your home is called the LTV ratio. An LTV ratio of 75%, for example, means that you can borrow up to 75% of your property value or price, whichever is lower.
If a property is priced higher than its value, the difference is referred to as Cash Over Value (COV).
For HDB Concessionary Loans, the maximum LTV is 90%. The remaining 10% can be paid through cash, your CPF Ordinary Account (CPF OA), or a combination of both.
For bank loans, the maximum LTV is 75%. The remaining 20% can be paid through a combination of cash or your CPF OA, but an absolute minimum of 5% must be paid in cash.
Take note that LTV ratios do not differ based on the type of property you’re purchasing, but rather on whom you’re getting your loan from. This means that if you are purchasing a HDB flat (whether BTO or resale), but are planning to finance it with a bank loan, then the LTV applicable to you would be 75%, with a minimum 5% paid with cash and the remaining 20% paid with cash and/or your CPF OA.
How Does That Work?
Let’s say you are buying a HDB 4-room resale flat valued at S$500,000. However, the actual property price the seller is quoting is S$515,000. This difference of S$15,000 is called the Cash Over Valuation (COV).
Using an HDB Concessionary Loan, you could borrow a maximum of S$450,000 for your purchase (90% of S$500,000). Up to S$50,000 (10% of S$500,000) can be paid through cash or your CPF OA, but the remaining amount – the COV of S$15,000 – is not covered by the loan at all. You will have to pay the COV in cash.
Using a bank loan, you could borrow a maximum of S$375,000 (75% of S$500,000). You can then use up to S$100,000 of your CPF OA monies (20% of S$500,000) to finance the purchase, but the remaining amount (S$40,000 = 5% of S$500,000 + COV) will have to be paid in cash.
Note that, under Monetary Authority of Singapore (MAS) regulations, you cannot take a bank loan to finance the down payment.
The Maximum LTV Ratio Is Not Guaranteed
As mentioned above, the maximum LTV for an HDB loan is 90%, whereas the maximum LTV for a bank loan is 75%. However, HDB and the banks are not required to give you the maximum LTV. They can choose to lower the LTV if they feel it would be appropriate.
Some other factors that can lower your LTV include:
- Outstanding home loans
- Remaining lease on the property
- Location and state of the property
- Your age and loan tenure
- Your credit score
1. Outstanding Home Loans
If you have one outstanding home loan, the LTV of your second home loan is capped at 45%. Of the remaining 55% down payment, half must be paid in cash, and the remainder can be paid in cash or your CPF OA.
If you already have two outstanding home loans, and want to take a third, the LTV ratio is capped at 35%.
Note that these LTV ratios quoted above are only eligible for loans with a loan tenure of 30 years or less. If the loan exceeds the age limit of 65 or has a tenure of longer than 30 years (or 25 years for HDB), the LTV can fall even lower. See points 4 and 5 for more information.
2. Remaining Lease on the Property
For properties that only have 36 to 40 years left on the lease, the maximum LTV is often capped at 60 per cent. However, you can still pay up to 15 per cent of the property price or value (whichever is lower) with your CPF.
For properties with 35 years or less on the lease, home loans are usually not possible. In addition, you cannot use your CPF funds for properties with 30 years or fewer on the lease.
(You may have read about such properties being purchased through monthly repayments. This is often a case where the buyer has negotiated a private contract with the seller, via a law firm. Alternatively, it may be a special loan for wealthy buyers, who have a high net worth and access to private banking facilities.)
3. Location and State of the Property
The LTV limit can decrease significantly, based on the location and state of the property. For example, properties that are located abroad, or in especially undesirable locations, may cause you to get a lower LTV limit.
Properties that are run down, or have major defects (e.g. a condominium in which residents are currently suing developers for defects) may also cause lenders to offer a lower LTV.
4. Your Personal Age and Tenure of Your Loan
As of 6 Jul 2018, the LTV for private properties will be capped at 55% if the loan tenure exceeds 30 years, or if the loan tenure plus your age extends beyond 65. For an HDB flat, the LTV will be capped at 55% if the loan tenure exceeds 25 years, or if the loan tenure plus your age extends beyond 65.
This means that if you’re taking out a private home loan at 35, you’ll have to ensure that you repay your full loan amount before you turn 65 to enjoy the higher LTV.
If you also have outstanding home loans (see point 1), the LTV can fall even lower, to 25%.
5. Your Credit Score
During the home loan application process, lenders will check your credit score. If you have a history of late or non-payment on loans, you could be identified as a credit risk. Banks may offer you a lower LTV than the allowable limit – for example, an LTV of 65% instead of the maximum 75%.
To prevent this, be sure to always repay your loans on time; regardless of whether they are home loans, credit card loans, personal loans, or others. Even an unpaid loan from 10 years ago could affect your LTV.
Now that you know what are the factors influencing your home loan limits, you can better plan for your next property purchase. Don’t forget to compare home loans to get the best rates!
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Read these next:
How Some Singaporeans Buy A House Without The Bank’s Help
How Do HDB Home Loans Work?
Singapore Home Loans: What does the Bank Jargon Mean?
How to Qualify and Apply for the HDB Loan?
5 Renovation Tips To Maximise The Value of Your First Home
By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.