Before you start your Home Loan comparison
A mortgage loan is a loan for the purchase of a property and secured on the property that you buy. They have secured loans that use your property as the collateral. Before we pry into the details of how mortgage loans work, it is important to first determine your eligibility, the affordability of the property as well as get ready a loan-approval in principle.
There are different eligibility requirements for various types of property purchases, so it’s a good idea to look at your eligibility first.
For those interested in buying public housing and getting an HDB Concessionary loan, HDB will require all potential flat buyers to first obtain an HDB Loan Eligibility (HLE) letter. This HLE letter must be obtained before committing to the purchase of a flat. This will provide prior information on your loan eligibility quantum and monthly instalment to ensure you are able to service the loan without overstretching your finances. Eligibility for application of both bank loans and HDB loans will take into consideration other eligibility criteria such as a minimum income, residency status as well as age limit. Banks typically use two main criteria to assess your loan eligibility:
- Total Debt Servicing Ratio (TDSR) -The ratio uses a calculation of your total monthly debt obligations, such as those of existing car loans, credit facilities and other debt obligations. Your total monthly repayment instalments for all debt obligations must not exceed a TDSR of 60 percent. For loans used to finance the purchase of public housing, the monthly mortgage repayment instalment cannot exceed 30 percent of a borrower’s gross monthly income.
- Loan-to-value (LTV) ratio – This is the amount of loan taken out on a property in relation to its value expressed as a percentage. Given the tighter credit conditions set by the Singapore government in recent years, banks will also do a credit check on your financial situation so as to be sure you are in a clean bill of financial health.
As a general guideline, your monthly home loan instalment and other long-term debts such as car loans should not take up more than 35 percent of your gross monthly income.
You should check out some of the housing grants that you might be eligible for. There are a number of CPF Housing Grant that can save you up to a five-figure sum so why not do a bit of homework to take advantage of these freebies?
A key concern of most home buyers will be the minimum down payment that is required. You will need to pay a 10 percent downpayment on HDB loans and you can use a variety of methods for the payment, including cash, CPF savings as well as utilising the CPF Housing Grant. You will also be able to split up the total into two payments – 5 percent at the time of signing the Agreement for lease and the balance at the time of keys collection.
The downpayment for bank loans depends on the loan quantum you are eligible for:
80% – Downpayment typically consists of 5 percent in cash with the balance 5 percent using CPF savings, CPF housing grant or cash when signing the Agreement for lease.
You will need to pay up the remaining 10 percent downpayment during keys collection.
60% or 40% – For those eligible for a lower loan ceiling, you are expected to pay an upfront downpayment of 10 percent in cash, and the remaining 10 percent during keys collection.
An approval-in-principle(AIP) is a conditional approval for your home loan. One of the most important functions of the AIP is that it gives you an idea of the loan quantum you are eligible for and the monthly repayment amount. This helps you to zero in on a property that you can afford and not waste time viewing the ones that are out of your budget.
The outcome of the AIP could be as fast as an hour and the validity period of the AIP varies between 14 to 60 days. During this period, you will need to submit various financial documents for banks to assess your credit history and make a formal offer. Do note that an AIP is non-binding for both the applicant and the financier so you are allowed to change banks or loan packages even after obtaining an approval-in-principle loan from a particular bank.
Understand more about mortgages and feel comfortable comparing the different rates and providers in Singapore, then what are you waiting for compare mortgages today!