So you have finally decided that living with your parents, siblings, and grandparents is no longer an option. And now you are frantically searching for “how much loan can I get from bank.”
Buying a home is an important step in your adulting journey, and you are on the right page.
We will tell you exactly how much you can borrow for a home loan. We will discuss the range of factors that influence the bank’s decision, show you how to use a home loan planner, and explain specific terms.
This article also gives you actionable advice on obtaining the best mortgage loan for your needs. Keep reading below!
How Much Can You Borrow For Your Home Loan?
The amount you can borrow is influenced by multiple factors. Here are the most important ones:
If you have a larger monthly income, you can borrow more money. The reason is that the bank takes on less risk when it lends you those funds.
The type of employment you have matters too. Unfortunately, banks consider self-employed Singaporeans riskier because they lack job security.
The Type Of Loan
Bank loans allow you to borrow up to 75% of your home’s value. Conversely, HDB loans will enable you to borrow up to 85% of that amount.
Preexisting debt means a portion of your income already goes to those installments. So the new installments you can fit into your budget will be lower.
The Ministry of Law has established two types of debt-to-income (DTI) ratios to consider:
- Total Debt Servicing Ratio (TDSR): 55%. You cannot pay more than 55% of your gross income towards your monthly installments. We will discuss more about this variable below.
- Mortgage Servicing Ratio (MSR): 30%. You cannot pay more than 30% of your gross monthly income towards house loans.
Your Credit History
Having a poor credit history is reflected in your credit score. A low rating entails higher risk for loan providers. That’s why people with good credit ratings get access to larger amounts and lower interest rates.
If you are older, your maximum loan tenure will be reduced. And since your monthly repayments remain capped at 30% of your gross earnings, the total loan amount you can borrow is smaller.
What Is The Total Debt Servicing Ratio?
The Total Debt Servicing Ratio is one factor that influences a bank loan. The Monetary Authority of Singapore capped the TDSR at 55% in December 2021, having previously been 60%.
TDSR = Total monthly debt payments / Gross monthly income
That means your loan installments must be up to 55% of your gross monthly income.
- Higher TDSR tells banks that you are already burdened with debt. Therefore, paying another installment is likelier to be challenging for you. As a result, some banks may reject your loan application, lend you a lower amount or establish a higher interest rate.
- Lower TDSR tells banks you are not burdened with debt. That means a) you can fit in a larger installment in your budget, and b) you are diligent with your expenses in general.
Pro tip: Understand how much debt you have and how much you can actually borrow based on that debt.
Suppose you consider a $350,000 loan with a 4% interest rate per year and 25-year tenure.
In this case, your estimated monthly payment is $1847.43.
Assuming your income is $6,000/year, you can have:
- Total loan installments: Up to $3,300/month.
- Total home loan installments: Up to $2,000/month.
Since your $1847.43 is below the maximum MSR, you can technically fit it into your budget.
Let’s assume you also have an outstanding car loan and education loan amounting to $1,500/month. Since your TDSR is 55%, your total loan installments must be below $3,300.
And that means a home that you can afford has installments below $1,800.
What can you do?
- Consider applying for a home loan that’s cheaper or:
- Borrow a home loan for a longer period. Adding 18 months to your tenure decreases the monthly installment to $1,786.81.
If you want you have outstanding home loans and want to assess mortgage payments for your dream home, use a mortgage calculator.
How To Use A Home Loan Calculator
These online tools are fairly intuitive. All you have to do is select the correct options to find out how much your home purchase will translate into monthly.
Needless to say, different alternatives lead to different installments. Having that comparison enables you to check affordability and estimate how much a bank will let you borrow.
The info you must input includes:
- The type of property you are buying: HDB flat, executive condo, condo, or landed property
- The purchase status: New purchase or refinancing
- Property status: Completed or under construction
- Loan amount: The maximum housing loan you are eligible for based on the value of the property
- Loan duration: The total loan term in years
- Loan interest rate: The interest rate on a specific loan offer
The sorest point of all these factors is probably the loan amount. “How much loan can I get from bank?” is one of the most searched keywords on Google.
That brings us to the following point:
What Is The LTV Ratio?
The loan-to-value ratio in Singapore (LTV ratio) is calculated by dividing the loan amount you can take to the total value of your home. Take this example:
If an apartment costs $500,000, but the bank will only lend you $350,000, that makes the loan-to-value 70%.
- The maximum LTV ratio for bank loans in Singapore is 75% of your home’s value, of which 5% of the selling price must be paid in cash. The borrower – you – can pay the remaining 25% using cash and CPF funds.
- The maximum LTV ratio for HDB loans in Singapore is 85%. You can repay the remaining 15% of your home’s selling value using cash and CPF. So, this option does not commit you to a cash advance.
Pro tip: A higher LTV is not necessarily better because it comes with higher interest rates and overall loan costs. By comparison, a lower LTV ratio allows you to repay lower interest and become debt-free faster.
But a lower LTV ratio may not represent the embodiment of your dreams, either. We will discuss this below:
How To Lower Your LTV Ratio
Some factors lower how much you can get for a housing loan in Singapore against your will. As a result, you can access less money because your bank deems you a higher risk.
Other times, you may want to specifically lower that LTV ratio to become debt-free faster, pay lower installments, and reduce your monthly mortgage interest.
Let’s see what you are in for:
Factors That Lower Your LTV Ratio Against Your Will
- Low income: Earning less money decreases the maximum home loan you can take because TDSR and MSR remain fixed. So even if you have no existing loans and impeccable credit history, financial institutions still cannot lend you more than 55% of your monthly income.
- Large debts: Preexisting loans like credit card debt lower the LTV ratio, as we have shown you in the example above. Even if your current loan fits the MSR of 30%, your cumulated monthly debts cannot represent more than 55% of your gross monthly earnings.
- Existing home-purchase monthly loans:
- Having another unpaid home loan lowers your LTV to 45%: That entails a 55% downpayment. And half of that advance – meaning 27.5% of your home’s value must be paid in cash.
- Having TWO other unpaid loans lowers your LTV to 35%: In this case, the new loan downpayment will be 65%. Besides, you are eligible only if you can keep the loan tenure below 30 years and be younger than 65 years at the end of your term.
- Remaining apartment lease:
- Lease below 35 years: You may not find a lender for this specific loan at all.
- Lease between 36 and 40 years: The maximum LTV is 60% for this longer loan tenure. The downpayment is 40%, of which 15% of your home’s value can be paid with CPF.
- Loan tenure exceeds 40 years: You can borrow up to 75 percent of the property value.
- Property state and location: A central location entails higher resale value, so you can obtain larger bank loans for these properties. The same is true for new properties. However, older resale flats lower your LTV.
- Age and duration: The home loan in Singapore is 55% of your property’s price if:
- You buy a properties that is private and has a loan tenure of 30 years and above
- Your loan duration exceeds 25 years for HDB flats
- You cannot repay the loan before the age of 65.
- Your credit score: There is a difference between what you can afford and how much banks are willing to lend. A poor credit rating means you may borrow up to 40% of your Singapore’s property purchase price.
Factors That Lower Your Loan-to-Value Ratio Intentionally
If you want to lower LTV limits intentionally, you can:
- Save for a larger downpayment: You can save this money before applying for loan to purchase a home. This is good advice, especially for a higher property price.
- Get a bridging loan: If you sell your current property, take a bridging loan to pay a larger portion of your downpayment.
- Purchase a more affordable home: If you want to make smaller home loan repayments on your next home, consider a more value-for-money option.
How To Get The Best Home Loan
Knowing the amount you are eligible for is, indeed, important. But although specific ratios and variables are in place, you can also take action.
For example, debt consolidation or personal loans can help you refinance unpaid credit card bills, thus increasing your credit score. Besides, debt consolidation loans come with lower installments, giving you more room for a new home installment into your TDSR limit.
Alternatively, you can get a bridging loan for a larger cash advance.
Options always exist, and Lending Bee can help you find them.
We have years of experience, and our loan officers can help you with tailored financial solutions for your needs.
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.