Buying a home is an exciting yet nerve-wracking experience because of the uncertainty it brings.
Buyers often need some form of credit financing to bring their dreams to life, and this help is not assured.
As such, the questions Singaporeans commonly search for online regarding homeownership are probably along the lines of “How much loan can I get from a bank”, “How to get a bank loan for a condo”, “how much can I borrow for a home loan”, and “how much housing loan can I take”.
The answers to all these questions are in the housing loan policies that lenders follow.
Read on to see how you can determine the loan amount you qualify for as you embark on your home ownership journey.
Also, learn about factors like the loan-to-value (LTV) ratio that influence your eligibility for a loan. You will also learn about how you can work your way around them to qualify for the maximum housing loan in Singapore.
What Is The LTV Ratio?
The LTV ratio is a term that money lenders use to refer to the ratio of the secured loan to be disbursed, put against the appraised value of the asset being purchased, which becomes the collateral.
The LTV ratio is expressed as a percentage.
LTV ratio = (Loan Seeking or Current Loan Balance ÷ Home’s Appraised Value) × 100
Money lenders use this ratio as one of the determinants of whether to grant a loan because it lets them know the level of risk they would be assuming.
The bigger the downpayment you place, the less you will need to borrow. This translates to a low LTV ratio, which is more favourable to lenders compared to a high LTV ratio.
What To Know About The Maximum LTV Ratio
A maximum LTV ratio is the largest possible amount a lender can give you to finance your home purchase.
The LTV ratio acts as a safeguard that keeps lenders from overly leveraging the borrowers.
The maximum LTV ratio for bank loans is 75%, down from the previous 80% for a first loan.
Of the remaining 25%, you must pay 5% in cash, and for the remaining 20%, you can pay using a combination of CPF savings and cash.
The maximum LTV ratio for a HDB housing loan is 85%, which is only given when you purchase a HDB flat. The 85% maximum loan for HDB is calculated against the HDB’s value or purchase price.
In Singapore, the maximum LTV ratio is set by the government. The government also sets the maximum age for housing loans in Singapore, which is currently set at 65 years.
The reason for this capping is that a borrower’s age influences his or her financial productivity and, as such, the ability to repay the money borrowed.
As a result, it seeks to ensure that borrowers have finished or are almost done paying their loans by age 65, as they enter retirement.
Also, the more years a person has before retirement, the higher the LTV.
For example, the LTV ratio for loans with 30 years or less on their tenure is the maximum LTV of 75%.
Loans whose tenure is greater than 30 years have a maximum LTV of 55%.
A HDB loan with a tenure greater than 25 years has a 55% LTV.
But if the tenure is expected to last beyond the borrower’s 65th birthday, the borrower must pay at least a 10% downpayment.
How To Lower Your LTV Ratio
Lenders gauge the amount of risk involved in issuing the loan by the LTV ratio and going by an assessment.
They then decide whether to approve or deny the application. So you want the LTV ratio to be as low as possible.
You can lower the LTV by putting down a large downpayment on the property. Alternatively, you could opt for a less expensive property.
But since downscaling may not appeal to many buyers, the next best option is to postpone buying your property and instead, save up for longer so that you can have a larger downpayment and a lower LTV ratio.
If you are refinancing your home, the LTV ratio is calculated using your loan balance, and is proof of the equity you have in your home.
So to improve the LTV for refinancing, make more significant monthly mortgage loan payments. The greater the equity you accrue, the lower your LTV will fall.
If you cannot make large payments, let time work in your favour. Postpone your purchasing decision until you have paid off more of the loan.
In addition, if the value of the homes in your neighbourhood goes up, waiting and having your house reappraised would get you a lower LTV and increase your chances of getting a loan.
Why You Should Lower The LTV Ratio
It’s best to have a low LTV ratio because you will be better off when you borrow money.
A low LTV ratio increases your chances of securing the home mortgage loan amount you seek. The lender will also be likely to grant you favourable terms.
How Much Mortgage Loan Can You Afford
The rule of thumb when seeking a mortgage loan is to be sure you can afford it.
If you fail to keep up with the payments, you could lose your entire investment.
So before you initiate the purchasing process, take stock of the resources you have, and see what you can afford on your own and what you can comfortably borrow.
Some necessary items to factor into the affordability assessment are:
All Upfront Costs
You will need to settle many costs upfront, including the downpayment, agent fees, option fees, and legal costs.
You may also need to conduct some renovation before moving in, as well as factor in the cost of the move, and other miscellaneous costs.
Ongoing Expenses
Some expenses will require you to have some ready cash to pay for them.
Examples are monthly property expenses such as fire insurance, property tax, mortgage, and management fees.
Be aware also that a rise in interest rates may raise the interest rate on your home loan if you’re on a floating rate.
It might also happen that the property value will fall, and the LTV ratio will rise from the original figure.
In this case, you need to have some money to add to your downpayment or your monthly installments to lower the LTV ratio again.
Your Monthly Installments
This depends on your loan amount, tenure, and interest rate.
A longer tenure may have you paying low amounts for a long time at a higher interest rate.
A shorter tenure will have you paying more significant amounts over a short period for less interest.
So before you sign up for a loan, ask a lender to give you a loan payment schedule to see whether you can afford it.
HDB Loan Vs. Bank Loan
The decision of which lender should finance your home loan starts with asking the fundamental question, “how much can I borrow for a home loan”.
It boils down to which lender you would rather choose instead of the other, going by their terms. Would you rather get a bank loan for a condo or a HDB loan to get a HDB flat?
The table below may provide a better picture of what each choice offers and may make it easier for you to settle on one lender.
| Bank Loan | HDB Loan | |
|---|---|---|
| Interest rate | 1.2-2.2%, may increase | 2.6%, fixed |
| Downpayment | 5% cash, 20% cash or CPF | 15% may pay with only CPF |
| LTV | 75% | 85% |
| Repayment Amount | It varies because interest rates change | Relatively constant |
| Property Eligibility | Private property and HDB flats | HDB flats only |
| Borrower eligibility | A good credit score | Many, including an income ceiling, citizenship, home ownership |
| Maximum tenure | Up to 30 years | Up to 25 years |
| Minimum loan size | $100,000 | None |
| Loan switch | Cannot switch to HDB | Can switch to bank loan |
| Early repayment | 1.5% penalty | No penalty |
| Late repayment | Late fees per installment | A yearly late fee of 7.5% |
Other Factors To Consider
Other factors that may influence your eligibility for a loan and your choice of lender are:
- The loan tenure
- Your age
- Current home loans and the outstanding balance
- Years remaining on the property leased
- Location of the property
- Your credit score
Get Expert Advice For Your Housing Loan
Your best shot at securing a home loan easily in Singapore is to contact a reliable licensed money lender with a good reputation.
Lending Bee is one such lender that has the financial resources and a team of professionals to guide you through the process.
We have some of the most accommodating loan terms, catering to customers of different income levels.
Contact us at +65 6219 1611 or visit our website. You can also walk into any of our four outlets at these locations: Orchard Road, Bedok, Yishun, or Jurong.
We will be honoured to offer you credit and answer any loan financing questions you may have. Or apply for a loan now – it just takes five minutes.
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.
