It’s a stellar undertaking to plan and pay for your own HDB flat completely. For a government-subsidized property, it’s an expensive investment. However, thanks to readily-available financial assistance, you can have your flat in no time. You’ll need to know your maximum HDB loan first.
Your maximum financing available helps you plan for your new flat accordingly. If you’re eligible, the government will give you financial assistance to purchase its subsidized residential properties. Here’s everything you need to know to learn the maximum loan quickly.
HDB Loan Eligibility Criteria
Foreigners planning to purchase an HDB property can stop reading at this point. Only Singaporeans can own properties and use government-backed financial services. On the other hand, foreign workers can rent properties from Singaporean owners.
Here’s the complete eligibility list for prospective loan applicants.
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Citizenship
Only Singaporeans can own an HDB flat, meaning they can find out about their maximum loan amount and use financing services. Foreigners who have become permanent residents can own flats and use loans. However, if a Singaporean and foreigner were to pay for a flat, the government will recognize only the Singaporean as its owner.
HDB will ask for every loan applicant’s NRIC to prove they are Singaporeans. Additionally, it allows the government department to investigate their overall background for further references.
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Monthly Salary
Your gross monthly income post taxes and contributions should not exceed the following conditions:
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- Singaporean families cannot exceed a combined monthly income of S $14,000
- Families living with extended family members cannot go beyond a collective monthly total income of S $21,000
- Individual Singaporeans cannot exceed up to S $7,000 of income to purchase an HDB flat
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Private Property Ownership
Singaporeans who benefit from government-subsidized HDB loans have limitations in income and property ownership. If you’re a national who owns a house, you’re automatically ineligible for an HDB housing loan. The same goes for individuals who have recently sold their property in the last 30 months before their loan application.
Here are other disqualifications to note before applying for an HDB loan:
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Owners of properties they received as a gift, inheritance, or nominations
Owners of more than one small to big commercial properties (from hawker stalls to full-scale commercial and industrial properties)
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Household Status
Requirements for this aspect are virtually similar to private property ownership. Applicants must not have had two more HDB housing loans before applying. The government only allows one HDB loan per Singaporean citizen.
HDB Loan Eligibility: Pros and Cons
HDB Loan
Pros
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Smaller Downpayment
HDB loans have a smaller downpayment if you compare it with the stellar 5% cash banks require from borrowers. Aside from cash, you can only use your CPF Ordinary Account to pay for your property. Your contributions can address its downpayment, regular payments, legal fees, stamp duty, transfer fees, and other related costs.
Another big advantage of using a CPF ordinary account is your Home Protection Scheme coverage. It reduces your mortgage, allowing you to keep your home if you face unfortunate incidents resulting in death or permanent disability.
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Change to Bank Loans Any Time
Using an HDB housing loan gives you excellent advantages, but it does have some cons, such as a high-interest rate of 2.6% (more on this later). Banks have a floating interest rate that changes to your benefit or misfortune. If bank rates work best for you than an HDB housing loan, you can shift to bank financing without worries.
However, most HDB housing loan users find the fixed interest rate a safe option than the alleged money-saving floating interest of banks. If you’re a financial planner, fixed interest rates will always remain advantageous.
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Early Repayment
An HDB housing loan allows you to pay your maximum loan amount if you have enough using your CPF Ordinary Account, cash, or both. Truthfully, the HDB encourages all Singaporeans to quickly pay their financing as possible, making it a great option if you plan to increase your regular top-ups to hasten your HDB financing payments.
Cons
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Higher Interest Rates Than Banks
An HDB loan has a large starting loan interest rate of 2.6%. If you compare this with floating interest rates from bank loans, 0.3-1.3% is an enormous difference. However, if you’re a stability-based budgeter, a non-fluctuating interest rate is the best solution for you.
On the other hand, if you feel that you can save more money or find yourself lucky with floating bank interests, it might be the best option for you.
Bank Loan
Pros
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Lower Interest Rate
Banks need to step up against HDB loan offers if they want to attract borrowers. For this reason, banks have a lower interest rate than the Housing Development Board’s in-house financing scheme.
Additionally, the application process is as fast and easy as HDB loans. With some minor differences, such as added requirements or collateral, you can go through your bank loan and get results within weeks up to two months.
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Refinancing Made Easy
Furthermore, banks allow you to refinance with other banks should you feel they provide better offers than your current provider. While it entails some transfer and processing fees, refinancing is possible if you’d like to save more money with lower interest rates.
Take note that some banks can refuse your refinancing application. Fortunately, they brief you about the results before starting your transfer process with your current bank. Initiating HDB refinancing will not affect your credit scores negatively.
Cons
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Floating Interest Rates
Banks’ low-interest-rate is much more of a marketing strategy than an actual capacity to permanently have better rates. Like HDB housing loans, the interest and maximum loan you can have using banks depend greatly on the current SIBOR and SOR rates.
The bank’s average rate of borrowing from each other (SIBOR) and USD and SGD exchange rates has some challenging fluctuations (SOR) will explain why you might face a higher interest rate than your first-time interest first applied for an HDB loan.
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Early Repayment Penalties
All bank HDB housing loans have a fixed loan tenure. Unlike HDB, which encourages borrowers to pay their dues completely, banks disallow lump-sum payments until you fulfill the entire loan tenure.
Most banks have mapped out your financing’s interest rate and estimated repayment amounts before approving your loan application. Therefore, if you complete your loan before its term ends, you’ll end up with a higher loan principle.
Then again, this is useful in avoiding higher interest over your principals. Most penalties can cover about 50-80% of your total estimated interest rates.
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High Downpayment
HDB’s in-house financing services allow you to pay using your CPF OA or 10% of the property’s value in cash. With banks, you can only pay cash for 5% of the property’s total Loan-To-Value ratio (LTV, more on this later) and use about 20% of your CPF OA savings.
However, you see it, banks have a higher downpayment even if it feels that the 5% cash downpayment seems lower than HDB’s requirements.
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Can’t Use HDB Loan
Once you’ve begun using banks to finance the property, banks will allow you to refinance with other banks. However, HDB will not accept your refinancing application.
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High Minimum Loan Amount
When you use bank services, you have a maximum loan amount of 75% of the property’s purchase price. With HDB, you can use the loan to pay 90% of the property’s price or resale value, whichever is lower.
How Much Can You Borrow?
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HDB Loan
For HDB loans, the maximum loan amount you can borrow is 90% of the total property value. You’ll need to provide a 10% downpayment, 5% of which you can pay in cash.
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Bank Loan
With banks, you have a maximum loan amount of 80%. However, the bank requires you to pay 20% of the HDB property’s overall value, allowing you to efficiently complete the entire payment.
Here’s a sample calculation:
HDB Property Value: S $300,000
Average Monthly Income: S $2,500
Repayment Period: 25 Years
Looking for an alternative solution for your home loan? Learn more about bridging loan.
Loans Calculation
- HDB Loans: S $270,000 maximum loan value, 2.5% interest per annum Monthly Payments: S $1,225 Total Costs: S $367,500
- Bank Loans: S $225,000 maximum loan value, fluctuating interest rates per year Monthly Payments: Potentially S $1,200 – S $1,448 Possible Total Loan Amount: S $330,000 – S $347,520
The HDB has a convenient calculator HDB loan you can visit from its website. The loan calculator HDB allows you to see the total loan amount, tenor, and available interest rate. The HDB calculator loan makes it easy to create accurate budgeting estimates.
However, be aware that the HDB loan calculator does not apply to a bank loan calculation. It can only calculate HDB loan values.
Lowering Your Loan-To-Value (LTV) Ratio
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Reduce Outstanding Home Loans
Truthfully, you can’t lower your LTV that easily, but you can deal with down payments better by reducing other outstanding home loans you might have.
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Longer Property Leasing
Having a longer property leasing will inflate your interest payments, but it’s a better option if it helps alleviate your budgets.
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Property Location and State
Most properties in uncrowded and low-urban areas, mostly those distant from population centers, have lower values. Consequently, it helps you have better LTVs
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Age and Loan Tenure
Shorter loan tenures give you lower interest fees. However, you’ll need to have much more cash on hand. Longer loan tenures have higher interest fees but a lower burden on your savings. The property’s age dictates its overall property value, which increases or decreases your LTV.
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Credit Score
Banks use credit scores and collateral for an HDB Bank loan. Use this to your advantage, especially if you have nominal credit scores.
Singapore Offers Plenty of Options for HDB Financing
Both HDB and bank loans have their respective advantages and disadvantages. Each can offer a great solution depending on the borrower’s situation. If you’re having difficulty finding the best bank loans, you can always use the advanced comparison algorithms on Loan Advisor.
