As a Singaporean, owning a home is a priority and an achievement.
A home is an acquisition that assures you of a secure place for you and your family. Unless you come from a wealthy family, saving to buy a home can become one of life’s unachieved dreams.
Fortunately, you can quickly get a home loan thanks to House Development Board policies that have enabled many Singaporean to own homes. However, these loans come with stringent requirements that may lock out others.
But how do you go about getting access to a home loan? Here is our guide comprehensive guide to help put you on a path to homeownership:
Types of Home Loans Available
The first step in getting a home loan is to know the types of loans available. In Singapore, you can apply for bank loans or HDB loans.
Bank loans are available to all, citizens and non-citizens, as long as they meet the credit score guidelines and bank’s requirements. HBD loans, however, are set aside to help Singaporean citizens buy HDB flats. They have stringent specifications, not available to foreign residents to increase homeownership in the country.
Bank loans can purchase both private residences and HDB flats. There are several types of bank loans to choose from, so ensure that you select a loan that is the most suited to your financial situation.
The four main types of bank loans include:
- Fixed-Rate – fixed interest rates for 1-2 years
- Floating Rate – volatile interest rates pegged to SIBOR and SOR
- Board Rate – arbitrary interest rates levied at the bank’s discretion
- Fixed Deposit-linked Rate – interest rates pegged to the bank’s fixed deposit rate and change at the bank’s discretion
- Equity Loans – money borrowed against the paid-off portion of your property
The HDB loan is ideal for buyers that prefer stable interest rates. It is also suitable for buyers short on cash as they only need to make a down payment of 10%, compared to bank loans which require 25% of the purchase price.
HDB loans are also more lenient when it comes to late repayments and do not place a penalty on early repayment, which bank loans do. These loans have interest rate pegged at 0.1% more than the CPF interest rate, currently at 2.6%. These rates are quite steep compared to bank loans.
To be eligible for an HDB loan:
- You must have a family income of S$12,000 per month or LESS
- You must sell any private property you own at least 30 months before the loan application
- You can only apply for 2 HDB home loans in lifetime
- At least one applicant must be a Singaporean citizen
- HDB loans can only purchase HDB flats, no other properties
- The tenure of the HDB loan must not exceed 25 years, or till you turn 65, whichever comes sooner
- Monthly repayments cannot exceed 30% of your monthly income
Down Payment Requirements
Whether you choose a bank loan or HDB Loan, you will need to come up with a down payment.
HDB loans allow you to put down a down payment of 10%, while bank loans require at least 25% of the purchase price.
All 10% of the HDB loan down payment can come from cash and CPF savings, but at least 5% must be cash. For bank loans, the down payment must equal 25% of the purchase price, and at least 5% must be in cash.
These fees are not refundable and must be paid before you can access the loan.
When buying a home in Singapore, you must pay the Buyer’s Stamp Duty tax. The amount depends on the value of your rounded off to the nearest dollar.
Also, you’ll need to pay Additional Buyer’s Stamp Duty, a tax on the purchase of residential properties in Singapore that only applies to Singapore citizens buying more than one property or permanent residents and foreigners.
The Loan Approval Process
An Approval In-Principle (AIP) gauges how much a bank will lend to a borrower based on their total income and current liabilities.
This information comes from income-related documents like a bank statement.
The bank then the ability of the borrower to repay the loan using metrics known as Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR).
These steps are precautionary to ensure that the borrower can repay their loan facility.
TDSR vs MSR
Total Debt Servicing Ratio (TDSR) is a metric used to ensure that borrowers aren’t overleveraged. Mortgage Servicing Ratio (MSR) takes into account housing loan repayments. So an MSR of 30% shows that 30% of your monthly income can go into home loan repayments.
If you already have an outstanding home loan, it’s unlikely that you can take on another loan without breaking the 60% TDSR rule, which stipulates that any loans given to borrowers including home loans cannot exceed 60% of income. Mortgage Servicing Ratio stipulates that repayment on a home loan cannot exceed 30% of total income.
Supporting Documents Required
What documents do the banks need to assess loan applications?
Banks need your identification and financial statements to help them assess your application. At this stage, a mortgage advisor would come in handy, and at Mortgage Simple, we have plenty on hand to advise you.
The documents needed for HDB loans and bank loans are similar, with bank loans requiring less. However, it is advisable to have on hand:
- Photocopy of NRIC or passport for all applicants and owners
- Option to purchase or sale and purchase agreement (for new property purchases)
- Evidence of sale of existing property (if applicable)
- Tenancy agreement (if applicable)
- Last 12 months loan statements from an existing bank or financial institution – (for refinancing)
- Latest CPF withdrawal statement for existing property to be sold or refinanced
- Latest Tax Assessment and CPF Statement (for salaried employees)
- 2 Years Income Tax Assessment (for self-employed applicants who have been at their current business for at least two years)
Loan applications are tedious and need careful consideration.
Should you need to make, a loan application for an HDB loan or bank loan, contact our helpful advisors at Mortgage Simple today. We will endeavour to get you the best deals from our partners Hong Leong Finance, Cimb, Singapura Finance, Citibank, HSBC, and DBS, and make your dreams of property ownership come true.