Have you finally decided to buy a HDB home? The very thought of owning a house of your own can be exhilarating. There are two types of home loans you can get in Singapore: a HDB loan and bank loan . The first is offered by the Home & Development Board to eligible Singaporeans and the latter is offered by banks.
Getting an HDB home loan
You can get a loan from the Home and Development Board (HDB) if you meet the eligibility criteria. The interest rate is fixed at 0.1% above whatever the CPF interest rate is at the time. The loan is only available to Singapore citizens whose combined gross monthly income does not exceed $12,000.
Before you can apply for a home loan, you must obtain an HDB Loan Eligibility (HLE) letter. This letter contains important information about the loan, such as the maximum amount of loan you can apply for, the maximum repayment period, and the maximum amount you are allowed to pay each month.
Application for the letter can be done online at HDB’s website. Before applying, make sure you have all necessary documents ready. You will need a copy of your valid SingPass, your CPF contribution history of the last 15 months, and your pay slips from the last three months. To apply, you must also complete a questionnaire for a preliminary assessment of your eligibility.
HDB will process your HLE letter application within 14 days. If you are found to be eligible for loan, you will receive an HLE letter, which will have a validity period of 6 months from the issue date. This gives you ample time to finalise your home loan.
Getting a home loan from a bank
If you are not eligible for or do not wish to take an HDB home loan, you can opt for a bank loan. Banks in Singapore offer a variety of home loans, such as variable interest loans, fixed interest rate loans, Singapore Interbank Offered Rate (SIBOR) pegged interest rate loans, and Swap Offer Rate (SOR) pegged interest rate loans. SIBOR-pegged interest rate loan is the most popular type of loan among borrowers. Bank interest rates are usually lower than the HDB home loan interest rate.
In order to apply for a bank loan, you have to first get an Approval In-Principle Approval (AIP), also called In-Principle Approval (IPA). AIP is an informal, non-binding agreement between you and the bank on the amount of loan you can borrow and the repayment period. Both sellers and real estate agents will take you more seriously if you have an AIP. The validity of an AIP can be from 2 weeks to a month.
Some important things you should know
When applying for a home loan (whether HDB or bank), there are a few very important things you should know. The first is that the amount of money you can borrow depends on factors like your salary, the loan-to-value (LTV) ratio and the Mortgage Servicing Ratio (MSR).
Loan-to-value (LTV) ratio is the ratio of a loan to the value of the property (or asset) purchased. Banks and building societies use this ratio to determine the maximum amount of loan that can be given to a customer.
Mortgage Servicing Ratio (MSR) is the ratio of the money spent on mortgage repayment every month to the borrower’s monthly gross income. Currently, MSR is capped at 30%. This means if you earn $5,000 in a month, you cannot spend more than $1,500 on loan repayment.
Lastly, and very importantly, make sure to compare Singapore’s home loan rates sites before approaching any lender.