How much can you borrow for a home loan in Singapore?
Three rules of the Monetary Authority of Singapore (MAS) set the ceiling. A bank may lend at most 75 per cent of the property's value to a borrower with no other housing loan, with at least 5 per cent paid in cash; the borrower's total monthly debt repayments, with the new loan counted at an interest rate of at least 4 per cent, may not exceed 55 per cent of gross monthly income; and for an HDB flat or a new executive condominium the mortgage alone may not take more than 30 per cent. A loan runs for at most 30 years on an HDB flat and 35 on other property, and a longer tenure, or one past the age of 65, cuts the limit to 55 per cent. Within those rules the bank decides.
The loan-to-value limit and the cash downpayment
MAS's page on loan tenure and loan-to-value limits sets how much of a property's value a financial institution may lend an individual, by the number of housing loans the borrower already has. With none outstanding the limit is 75 per cent, with a minimum cash downpayment of 5 per cent; with one outstanding loan it is 45 per cent, and with two or more 35 per cent, each with 25 per cent cash. The lower limits in MAS's table, 55, 25 and 15 per cent, apply when the loan tenure exceeds 30 years, or 25 years for an HDB flat, or the loan runs past the borrower's 65th birthday. A shell company or any borrower that is not an individual may borrow 15 per cent at most. MAS's example: a loan of S$150,000 on a S$1 million property is a loan-to-value ratio of 15 per cent.
How long the loan may run
MAS caps the tenure of a housing loan at 30 years for an HDB flat and 35 years for other property. For joint borrowers the age that counts is their income-weighted average: MAS's example pairs a 60-year-old earning S$8,000 a month with a 30-year-old earning S$10,000, for an average age of about 43. MoneySense, the government's financial education programme, adds that for the same sum a longer tenure means smaller instalments but more interest paid in all.
The 55 per cent total debt servicing ratio
MAS's rules say a borrower's total debt servicing ratio should be at or below 55 per cent: all monthly debt obligations, the new loan included, divided by gross monthly income. The debts counted are every property loan, car loan, student loan, renovation loan, credit card balance and any other secured or unsecured loan, which the lender confirms from documents and the credit bureau. For the new loan the lender must compute the instalment at the higher of a 4 per cent floor and the loan's thereafter rate, the highest rate the package charges after any introductory period, so that a borrower can still pay if rates rise; for a non-residential property the floor is 5 per cent. Where the ratio comes out above 55 per cent, MAS says the loan amount has to be reduced, though a lender may go above the threshold in exceptional cases after an enhanced credit evaluation.
On the income side, gross monthly income is income before tax, excluding the employer's CPF contribution. Variable income such as commission, bonus and allowances, averaged over the preceding twelve months, and rental income, proved by a stamped tenancy agreement with at least six months to run, each take a haircut of at least 30 per cent. Financial assets may count as an income stream, converted over 48 months with a haircut of up to 70 per cent for assets that are not pledged. Monthly repayments on an existing home can be left out of the ratio when it is being sold, on the documents MAS lists.
HDB flats and executive condominiums: the 30 per cent mortgage servicing ratio
For a loan to buy an HDB flat, or an executive condominium whose minimum occupation period has not expired, MAS adds a second test: the repayments on all the borrower's property loans, the new one included, may not exceed 30 per cent of gross monthly income, counting at least 20 per cent of the repayment on any property loan the borrower guarantees. MoneySense's comparison of an HDB loan and a bank loan on a flat: both lend up to 75 per cent, both apply the 30 per cent ratio; the HDB loan takes 15 per cent down, charges 0.1 per cent above the prevailing CPF interest rate, reviewed quarterly, runs up to 25 years and has no penalty for early repayment; a bank loan takes the downpayment MAS's table sets, is fixed or floating, runs up to 30 years and may charge fees for early repayment or refinancing inside a lock-in period. A borrower may switch from an HDB loan to a bank loan but not back.
Working it out before you make an offer
MoneySense advises buying a home whose upfront costs, running costs and instalments fit what you have: cash savings, CPF Ordinary Account savings, the net proceeds of a current home and a steady income, with upfront costs that include the option fee, the downpayment, stamp duty, legal costs and any agent's commission, and running costs that CPF cannot pay, such as property tax, insurance and maintenance fees. A bank's in-principle approval, or a broker's assessment under the three rules above, tells you the ceiling before you commit; the bank's letter of offer is what binds. The ranked list of mortgage brokers says which lenders each broker compares and what each handles, and its answers set out these rules as they bear on choosing one.