How Much Can You Borrow For Your Home Loan?

Buying a home is a significant investment and requires you to make major decisions. After all, it’s a long-term financial commitment. 

You need to take stock of what you can afford and how much you can borrow for your home loan. It is crucial that you can afford the initial cash outlay and ongoing payments.

One of the biggest decisions you will have to make is how to raise the deposit after determining how much you can borrow. 

In this article, we take a look at how much you can borrow for your home loan, and the difference between bank and HDB loans.

How Loan Amount And Tenure Are Determined

Owning a home is a dream for many Singaporeans. It is therefore important to ensure you plan properly. 

Before you can purchase a home, it’s important to understand how the loan amount and tenure are determined. We look at that in this section.

What Is A Loan Tenure?

The loan tenure refers to the duration over which your loan equated monthly installment (EMI) is spread. 

In other words, it’s the time you take to clear off the loan. The loan tenure and loan amount depend on several factors, which include: 

Age Of The Applicant

Before lending to a borrower, the financial institution will consider the borrower’s age. 

People in their early 20s and 30s have a longer working period, so they can choose a long tenure. This is in contrast with those in their 50s who only have a few years before they retire.

A longer repayment tenure means the EMI will be lower as compared to a shorter repayment period. 

It’s hard for those who are nearing retirement to get an extended loan tenure as financial institutions view it as a risk.

Income And Expenditure

Your income and expenses determine how much can be used to pay the loan. The lender will check whether you have other loans pending and your ability to pay.

If you have a higher EMI, you will need to show the lender you can manage to make the regular payments. 

The EMI forms part of your monthly expenses, and it’s important to ensure you can afford it without struggling.

Property Type

The type of property determines the value and the amount you need to pay. 

A property such as a condominium is more expensive than a HDB flat. This means you will need to borrow more if the property is expensive.

The higher the loan amount, the longer the loan tenure. Note that the longer the repayment period, the more interest you will pay.

In addition, the loan tenure will depend on the type of property. 

In Singapore, if you opt for a HDB flat, the maximum loan tenure is 30 years, while non-HDB properties have a loan tenure of up to 35 years.

Purpose Of The Loan

Home loans and mortgages have longer tenure than any other type of loan. 

A long tenure means you will pay more interest as compared to a short tenure. Loans such as personal and business loans have shorter tenures and lower interest.

Although the loan tenure varies, it can range from one month to 30 years for home loans and other properties.

How To Choose The Best Loan Tenure

With the right repayment tenure, you will be able to make the EMI on time and reduce the amount of interest you will need to pay. 

Here is how you can ensure you have the right loan tenure.

Prepare A Budget

Preparing a budget will help you note all the financial commitments you need to take care of at the end of every month. 

This will let you know how much you can use to pay for the home loan. It gives you a better idea of how much you can commit to the home loan.

Financial Situation

If you expect to receive a lump sum amount of money in the future, you can take this into consideration when calculating the EMI.

Cost Of The Loan

The longer the loan tenure, the more interest you will pay. This means the cost of your loan will be higher if the loan tenure is longer.

How Much Can You Borrow?

As mentioned, the amount you can borrow depends on your age, loan tenure, property type, and financial commitments. 

Those who wish to borrow jointly, are assessed on an income-weighted average age.

The amount you can borrow depends on the following factors:

Loan Tenure

In Singapore, the loan tenure is capped as follows:

• You can get a maximum loan tenure of 30 years if you opt for a HDB flats
• 35 years for non-HDB properties

Age Of The Borrower

How old the borrower is determines the loan tenure. 

The older the borrower, the shorter the loan tenure. In the case of joint borrowers, the lender uses the average age to determine the tenure.

Here’s how the age of joint borrowers is determined.

The age of Borrower 1 x Borrower 1’s gross monthly income / (Total of Borrower 1 and 2’s gross monthly incomes)) + (Age of the second borrower x Borrower 2’s gross monthly income / (Total of Borrower 1 and 2’s gross monthly incomes))

Let us do this practically and make it easier.

Let’s say Mr Yan and his wife would like to get a home loan. Mr Yan is 60 years old and his wife is 50 years old. 

Mr Yan has an income of $10,000, while his wife has an income of $8,000. Their weighted average age should be as follows:

Their income-weighted average age is:

(60 x $10,000/(10,000 + $8,000)) + (40 x $8,000/(8,000 + $10,000)) = 27.77 + 17.77

= 45.54

Loan-To-Value Ratio

The loan-to-value (LTV) ratio determines how much you get for your home loan from a lender.  

The LTV is a percentage of the property value. If you borrow $850,000 and the property value is $1,000,000, the LTV value is 85%.

In 2018, the government tightened the LTV value as below to keep property prices in check. The LTV depends on the number of loans the borrower holds currently.

What Is The LTV Ratio?

The LTV ratio is the amount you can borrow to finance your home. For example, an LTV of 85% means you can borrow up to 85% of the value of the property.

The LTV helps prevent borrowers from over-borrowing.  Note that HDB and banks don’t have to offer you the full LTV.

If the value of the property is higher than the LTV, you will have to pay the extra amount in cash. The extra amount is known as the Cash Over Value (COV) amount.

For example, if the value of a property is $500,000 but you accept an offer of $530,000, you will have to pay the $30,000 in cash. This is known as the COV amount.

How Does The LTV Ratio Work?

In Singapore, LTV falls into two categories. Let’s take a look at both.

LTV For HDB Loans

The LTV for HDB housing was set at 85%, down from 90% in 2021. This means the buyer will have to raise a 15% initial cash outlay from either his savings or CPF.

HDB loans are available for Build-To-Order homes, sale of balance flats, re-offer of balance flats, and resale flats.

LTV For Bank Loans 

The maximum LTV of a bank is capped at 75%. This means the bank can offer you a loan of up to 75% of the property value. 

Previously, the bank LTV was at 80% but it dropped to 75% as real estate cooling measures were introduced.

To make it clear, let’s say you want to buy a property whose value is $1,000,000. Here are the two scenarios:

Option 1: 

Opt for the HDB concessionary loan.

You will be eligible for a loan of up to 85%. 85% of $1000,000 = $850,000. 

You will have to raise the balance of $150,000 from your savings or use CPF funds. You can also use a mix of your savings or CPF funds.

Option 2: 

If you choose a bank loan, you will qualify for a loan of up to 75% of the value of the property.

75% x $1,000,000 = $750,000. In this case, you will have to raise 5% in cash and take 20% from your CPF funds.

Factors That Lower The LTV Ratio

As mentioned, HDB or any bank is not under any obligation to offer you the maximum LTV. 

Instead, they can opt for a lower LTV ratio. Here are the main factors that affect the LTV ratio. 

Loan Tenure

The loan tenure for a HDB flat is set at 30 years and 35 years for non-HDB properties. 

If the tenure exceeds the set loan, the LTV will be lower. This means you will need more initial outlay.

Borrower’s Age

The age of the borrower will determine the loan tenure. If the loan tenure extends beyond your 65th year, then the LTV will be capped. 

To enjoy a higher LTV, you will have to pay your loan before you turn 65 years old. 

Credit Score

If your credit score is poor, the lender will consider you a risk to lend to. Banks may choose to offer you a lower LTV. For instance, they may offer you a 60% LTV.

Property Location And Condition

Based on the condition and location of the property, the lender may lower the LTV. Properties in poor condition and located in less desirable areas will have a lower LTV.

Properties with defects or facing a pending lawsuit will also have a lower LTV.

Property Lease

If a property has a lease of less than 40 years, it will attract a lower LTV ratio. 

This is because lenders feel properties with a short lease may have a lower value. This means their collateral value is lower.

Number Of Existing Loans The Borrower Is Servicing

If you are servicing more than one loan, the LTV for the current loan is likely to be lower. Below is a summary of LTV based on the loans you are servicing.

Other terms you should take note of when searching for a home loan include:

Mortgage Service Ratio (MSR)

This refers to the proportion of a borrower’s income that goes towards a mortgage. 

The MSR is capped at 30% of the gross income. It only applies to housing loans that are for the purchase of HDB flats or executive condominiums if the occupation period has not expired.

Total Debt Servicing Ratio (TDSR)

The TDSR refers to the portion of a borrower’s income that goes towards debt repayment. It is supposed to be less than 55%.

How To Get A HDB Loan

If you want to own a flat, you can apply for a housing loan from HDB. Here are the criteria you must meet to qualify for a HDB loan. 

Eligibility

• One of the borrowers must be a Singapore citizen
• Applicants must not have taken two or more housing loans from HDB
• Singles must be at least 35 years old and intend to buy a two-room flexi flat on a 99-year lease or a five-room resale flat
• Monthly income for families must not exceed $14,000, $21,000 for extended families, and $7,000 for singles
• Applicants should have an interest in any local or overseas residential private properties
• Applicants should not have disposed of any private residential property in the last 30 months before the application
• You must be in continuous employment for at least three months if the salary is fixed
• Have a good credit score

If you meet the above eligibility criteria, you need to apply for a HDB loan eligibility (HLE) letter. The HDB letter contains the following details:

• Interest rate
• Repayment period
• Amount you can borrow
• Terms and conditions of the loan

Once you receive the eligibility letter, it will be valid for six months.

• To apply for the HDB loan, create a Singpass account.
• Get your income and expense documents ready. Upload the documents to the website, including the HLE letter. 
• Review the application status from the HDB page. Go to “My Flat” and then click “Application Status.”

Get The Home Loan You Need

Home loans make it easy to own a property, even as you wonder how much can you borrow for a home loan. 

They assist you in achieving your goal quickly and easily. Do your research and review your financial situation before choosing a property that suits your needs. 

Check out the various home loan options available and choose one that works for you.

If you are looking for the best lending options, look for Lending Bee. 

We are a licensed money lender that offers you lower interest, easy eligibility and convenient loan applications. 

Lending Bee has loan packages for all lending groups, so apply for a loan now.

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.