Buying a private residential property in Singapore is a huge milestone. Year after year, many strive to save up and apply for bank loans to buy a private property.
However, buying a private property is not only about being able to find a dream house within your budget. You also need to ensure you meet the legal requirements in addition to being able to afford the upfront cost. Your eligibility for a property loan is hence another story by itself.
Your Mortgage Affordability
Buying a house is a long-term commitment, so you must ensure that you can manage your finances in the long run.
The Upfront Costs
These are the costs you are required to pay for the purchase of your private property. The upfront costs include:
- 5% Option fee which comprises of 1% to obtain the Option to Purchase (OTP) and the remaining 4% upon exercising the OTP;
- Balance down payment. If you are taking up a bank loan to finance your purchase, your first housing loan requires a 20% down payment, inclusive of the option fee above;
- Legal cost;
- Agent’s fee;
- Buyer’s stamp duty;
- Additional buyer’s stamp duty, if applicable. Please refer to: https://www.iras.gov.sg/taxes/stamp-duty/for-property/buying-or-acquiring-property/additional-buyer’s-stamp-duty-(absd)
The Ongoing Expenses
These are the ongoing expenses that you will need to take care of. They cannot be paid through your Central Provident Fund account.
- Monthly expenses such as property taxes, management services fees, mortgage insurance, and conservancy;
- Considering the possible plunge in property value and exceeding the original LTV ratio;
- Hike in future interest rate considering a floating rate loan.
The Monthly Loan Instalments
Most people take up a housing loan to purchase a property. The loans are paid through monthly instalments which are calculated from:
- the amount you have borrowed;
- the interest rate;
- the loan tenure.
Keep in mind that if you opt for a longer tenure to pay off your loan, your monthly instalment payments will be lower, but you will be paying more interest in the long run.
Putting Your Finances Together
You now know what your expenses are going to be, so let’s take a look at how you can put your finances together. Look into all your resources, namely:
- CPF ordinary account savings;
- Cash savings to meet your upfront payments;
- Proceeds from sale of your current property, if any;
- Employment and/or trade income, which include passive income from equity and property investments;
- Quantum of housing loan available.
The lender will evaluate the loan you can take up for a home purchase, depending on:
- Loan-to-Value (LTV) Limit – to calculate how much you can borrow;
- Mortgage Servicing Ratio (MSR) – part of gross monthly income to service mortgage;
- Total Debt Servicing Ration (TDSR) – the proportion of your monthly income to service monthly repayments.
HDB vs. Bank Loans
If you are unsure about choosing between HDB loan or bank loan to finance your property, here are the key differences to help you decide:
- The LTV limit for HDB loans is up to 85%, while that for Bank loans is up to 75%.
- HDB allows remaining 15% of the purchase price to be paid in full using CPF but Bank loans requires a minimum of 5% to be paid in cash.
- Both have the same mortgage servicing ratio (30%).
- The maximum loan period for HBD is 25 years, while for bank loans is 30 to 35 years.
- You can always switch to a bank loan from an HDB loan but not the vice-versa.
Do Your Calculations
To check your eligibility and the amount you can borrow for HDB loans, you need to apply for a HDB Loan Eligibility (HLE) letter. Other than that, you need to take a look at your financial resources and the stability of your income, to kick off your application for a loan!
Taking up a mortgage loan can be an overwhelming process. Without sufficient knowledge of the basics of mortgage loans in Singapore, it may be fairly difficult to find a good deal for a mortgage loan. However, we at ValueMax (VM Credit Pte Ltd) are here to help you.
We offer clients fast loan approvals and easy mortgage loan agreements that require minimal documentation for loans collaterised by private real estates. Our loan terms are highly flexible, and loans are approved within a week.
For unencumbered property collaterals, we are able to disburse loans as fast as within a few days from the acceptance of our loan contracts. And guess what? There is no hidden fee! We provide a high level of transparency through lawyers who will handle the necessary documentation. Since our loans are privately funded, we are devoted to providing quick and efficient service.
So what are you waiting for? Avoid foreclosure and restructure your debt now!Learn more about VM credit