At a glance...
Calculating your borrowing limit for home loans in Singapore may puzzle you regardless if you’re a first-time purchaser or someone with experience in dealing with mortgages.
Most Singaporeans tend to worry about the initial cash outlay when deciding to purchase a home. This is because a small percentage of a property’s value can end up being a massive sum, thus most purchasers that want to borrow a home loan will try to minimise their down payment.
Your Loan-To-Value (LTV) ratio is how you can calculate your possible borrowing limit for a home loan. Typically, you may factor in certain methods to lower your LTV such as utilising your outstanding home loans, the remaining lease on the property of your choice, the location and state of the property chosen, your age and loan tenure, and your credit score.
Before we get into the details, you will need to understand what exactly is a Loan-To-Value (LTV) ratio and how you can estimate your possible borrowing limit with it.
The LTV ratio is the amount you can borrow to finance your home. If you have an LTV ratio of 75%, then that means that you may be able to borrow up to 75% of the property value or price, whichever is lower, for the home you desire.
However, if a property has a higher price than its value, then the difference will be referred to as Cash Over Value (COV).
The maximum LTV for HDB Concessionary Loans is 90%, and the remaining 10% can be paid via cash instead. You can also pay off the remaining 10% with your CPF Ordinary Account (CPF OA), or a combination of cash and your CPF OA.
On the other hand, bank loans have a maximum LTV of 75%. The remaining 20% in this case can be paid via a combination of cash or your CPF OA. However, a minimum 5% must be paid in cash.
LTV ratios do not change based on the type of property you desire to purchase, and instead is based on where you are getting your loan from. As such, if you are planning to purchase a HDB flat (regardless if it’s a BTO, SBF, or resale) and decide to finance it with a bank loan, then your total LTV will be at 75%, with a minimum of 5% paid in cash and the remaining 20% paid in cash or your CPF OA, or a combination of both.
For example, if you are planning on buying a 4-room HDB resale flat with a value of $500,000 and the actual property price set by the seller is at $515,000, then this difference of $15,000 is the Cash Over Valuation (COV).
If you were to choose an HDB Concessionary loan, the maximum amount you can borrow will be $450,000. This can cover for 90% of your $500,000 purchase. Up to 10% of that $500,000, which is $50,000 in this case, can be paid via cash or your CPF OA. However, the remaining amount, which is the COV of $15,000, will have to be paid in cash as it is not covered by the loan in any way.
Should you choose a bank loan instead, then the maximum amount you can borrow will be $375,000. This can cover for 75% of your $500,000 purchase. This way, up to 20% of that $500,000, which is $100,000, can be paid via your CPF OA. However, the remaining amount, which includes the COV and $40,000 which is 5% of that $500,000, will have to be paid in cash.
You should also keep in mind that under regulations by the Monetary Authority of Singapore (MAS), you are not allowed to use a bank loan to finance your down payment.
Besides all that, you should know that the maximum LTV is not a guarantee after all calculations are made.
This is because while the maximum LTV ratio for an HDB loan is 90% and the maximum LTV ratio for a bank loan is 75%, it does not mean that the HDB or bank is required to provide you with the maximum amount based on the maximum LTV ratio. It is because they are able to choose to lower the LTV ratio should they decide it is appropriate.
Other than that, other factors can also lower your LTV ratio, including your outstanding home loans, the remaining lease on the property of your choice, the location and state of the property chosen, your age and loan tenure, and your credit score.
Here is a more detailed explanation regarding each factor that may lower your LTV ratio:
1. Your Outstanding Home Loans
If you currently have one outstanding home loan, the LTV ratio of your second home loan will be capped at 45%. As for the remaining 55% downpayment, half of it must be paid via cash whereas the other half can be paid either via cash of your CPF OA funds.
However, if you already have two outstanding home loans and wish to get a third loan, then the LTV ratio will be capped at 35% instead.
Note: The LTV ratios mentioned here are only for loans with a loan tenure of 30 years or less, and if the loan exceeds the age limit of 65 or has a tenure that exceeds 30 years (or exceeds 25 years for HDB), then the LTV ratio may drop lower.
2. Your Remaining Lease on the Property
If a property has only 36 – 40 years left on the lease, then the maximum LTV ratio will usually be capped at 60%. However, you are still able to pay up to 15% of the property price or value, depending on which is the lower, with your CPF.
On the other hand, if a property has 35 years or less on the lease, then a home loan may not be possible for the most part. Besides that, you are not allowed to use your CPF funds for any property that has 30 years or fewer on the lease.
Such properties may be purchased through monthly repayments instead, and it is often in the case when the buyer has negotiated a private contract with the seller through a law firm. For wealthy buyers with a high net worth and access to private banking facilities, however, it may actually be a special loan instead.
3. Your Property’s Location and State
When based on the location and state of the property, your LTV ratio limit can be decreased significantly. This is possible with properties that are located abroad or that are in undesirable locations, which can cause a lower LTV ratio limit to occur.
Run down properties or properties with major defects, such as a condominium wherein residents are suing developers for said defects, may also cause lenders to offer a lower LTV ratio.
4. Your Age and the Loan’s Tenure
The LTV ratio for private properties have been capped at 55% since 2018, and applies to loan tenures that exceed 30 years or if the loan tenure and your age extends past 65 years. For HDB flats, the LTV ratio is capped at 55% should the loan tenure exceed 25 years, or if the loan tenure and your age extends past 65 years.
As such, if you intend to take out a private home loan at age 35, you will need to ensure you repay the full loan amount before you turn 65 years in age to enjoy a higher LTV ratio of 75%. And of course, if you have outstanding home loans, then the LTV ratio may drop lower by 25%.
5. Your Current Credit Score
Lenders will check your credit score during the home loan application process, and if you have a history of late or non-repayment on your loans, then you will be identified as a credit risk. This could cause banks to offer you a lower LTV ratio than the allowed limit, such as an LTV ratio of 65% instead of the maximum of 75%.
In order to prevent this from happening, make sure you repay your loans on time. Regardless of the type of loan, be it a home loan, credit card loan, personal loan, or other types, an unpaid loan from as long as 10 years ago can affect your LTV ratio.
After this detailed summary of what factors may influence your LTV ratio limit, you can now carefully plan for your next property purchase regardless if you’re a first-time purchaser or someone with experience in dealing with mortgages.