What is a renovation loan?
A Renovation Loan pertains to the type of loan that covers the costs of renovating a “fixer-upper”, or such renovations that come with purchasing a house. While it can also be wrapped into a mortgage loan, a home renovation loan is the perfect option if you want to fix something like heating and cooling systems, roofing improvements, mold remediation, kitchen and bathrooms projects.
In Singapore, whole apartment makeovers can easily amount from $10,000 to $100,000 depending on how much change you want to accomplish.
Fortunately, if you’re planning on some renovations, loan options offered by both moneylenders and banks in Singapore offer renovation loan programs, though the terms and conditions vary. Some of the most popular loans are the DBS renovation loan and Maybank renovation loan.
These loans can be of assistance and give homeowners the option to help pay for their home’s renovation costs within 2 years, 3 years, or even 5 years or more depending on their preferences. You have options on determining which lender has the best renovation loan terms for you.
What can you use a renovation loan for?
While it’s tempting to use a renovation loan to pay off your mortgage or home loan, there are several things you can’t do with it like pay off your home loan, or buy new furniture or appliances with it.
For those, you should consider taking up a personal loan in which the loan amount can be used in accordance with your needs and wants such as buying a washing machine, installing curtains, and more.
What you can do with the loan amount are the following:
- Electrical and wiring jobs
- Bathroom renovations
- Wall and floor painting or tiling
- External improvements like roofs or fences
Who is eligible to apply?
Total interest rates for renovation loans are very low as compared to a personal loan. As a result, you need to fulfill certain criteria to get one for your home renovation.
- You must be 21 years old and be either a Singaporean or a permanent resident
- You need to be the owner of the property being renovated
- You are within the minimum income threshold for this loan
These criteria exist because all banks and moneylenders would need you to prove your ownership of the property, your monthly income documents, and other related documentation such as your NRIC and CPF statements. These documentations will determine the most suitable renovation loan amount for your needs.
Also the lenders would differ with regards to the income requirement and rates offered. It is always wise to shop around and check their rates and terms before you apply for what you think is the best renovation loan and the loan amount for your needs with a lender.
Factors to consider when choosing your renovation loans
There are several factors to consider when choosing your renovation loans. Some of these factors are:
1. Loan Amount
The first thing you need to do is find out which parts of your home need a renovation and how much is your budget. As we’ve mentioned before, HDB flat owners tend to spend around $30,000 to $60,000 for their renovations on average, so the amount you need to borrow would need to cover all your essentials.
In addition, renovation loans in Singapore are limited by the amount you are able to loan and if your plans have exceeded the amount you have budgeted for or are able to take out, you will have to pay the remaining amount out of your pocket. So plan ahead to keep your budget manageable.
2. Interest rate
Your loan amount is not the only thing you should consider when looking for the best deals. The maximum loan amount with the interest rate and fees total should be considered as you would not only be paying for the amount you have taken out, you will also be paying for the interest rate and amount accrued.
Therefore, you need to know how much interest you will be charged in total, and if the rates are done monthly or yearly. This would allow you to know how much you will be paying in total instead of just the amount you have borrowed.
Some unscrupulous lenders have also added fees that are not spoken of until the signing of the contract is over. Others have made their loan officers gloss over their fee rates, downplaying the amount you would be paying beforehand.
It is in your best interest to seek clarification on all the fees associated with the contract and find a lender that offers you the lowest possible rates, as the rates would determine your total amount to be paid at the end of the day.
4. Loan provider
Your loan provider could perhaps be the most important factor for your consideration. A decent loan provider would be able to give you great interest rates, flexible repayment terms and low fees for your loans.
A badly chosen loan provider would instead cost you more as the lender would be tacking on hidden fees, charges and other rates not mentioned prior to the signing of your loan contract.
You should only choose a moneylender that is licensed, and registered with the Registry of Moneylenders. If a lender is offering you rates and terms that look too good to be true, it probably is. Do your due diligence, research your loan provider carefully and find out if they are legit or loan sharks masquerading as legal lenders.
If you are unsure, check out some of our best licensed moneylenders around Singapore. These lenders are proven by many others to be reliable, trustworthy, and most importantly, licensed.
When your house needs renovating, do not wait until the room or your home becomes wrecked. If you delay any needed renovation, the house may no longer be usable for you and your family even if it has been your home for a very long time.
It will only cost you more to replace an entire house when simple renovations will no longer work, and you may have to renew everything.
Once you decide that it is time for a renovation, but you do not have funds for it, get yourself a renovation loan with the help of a moneylender you can trust. The loan amount lent to you will be your safety net on acquiring your new dream house.
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Frequently Asked Questions
Typically, a borrower needs to earn a minimum of $24,000 to $30,000 a year before they are eligible for a renovation loan. They can also only take up a maximum of six months of their monthly income, whether individual or combined income with a spouse that is amounting to $30,000, whichever is lower.
This means should a borrower decide to perform an extensive home renovation, the amount would only be enough to renovate a limited portion of the home and the rest must be paid out of their pocket.
If you need funds for your renovations, you will need to get an invoice from your vendors. The invoice must be signed by you and the vendors in order for us to proceed.
it is always wiser to choose renovation loans instead of personal loans. While a personal loan does the same job as that of renovation loans, banks and moneylenders will check a person’s credit risk and their intentions. With this, it is beneficial to use renovation invoices to secure the approval rate of the loan.
For many banks, the fact they will not be informed about where the loan amount will be used presents a high risk for them. They will still be open in offering personal loans, but it will have high total interest rates. While moneylenders are a bit lenient about this fact when they assess a person’s loan application, they do prefer knowing where the loan will be used.
On the other hand, renovation loans are very specific. Since the money lender or bank will know where you will use the loan amount, the loan they will give you has lower total interest rates. Normally, personal loans come with an effective total interest rate of 12 to 15% and for renovation loans, their total interest costs are lower at 6 to 7%.
Unfortunately, No. Unlike the home down payment, your CPF cannot be used for your renovation loan. You will have to pay out of pocket for any renovation costs you incur.
These days, most loans can be applied online through the respective lenders’ websites. Their application processes are easy to navigate and would present no challenges for anyone who needs the loan.
However, before you apply, it is important for you to determine your needs carefully. Do you need an entire house makeover or just some rooms? Knowing this will enable your contractor to give you a good quote for the project to determine your loan amount.
Your contractor must also help you understand what you need during the renovations. The quote will give you an idea of how much you will spend on the renovations.
Finally, you should apply only to a licensed moneylender or bank for the loan. When you apply for a renovation loan, make sure you only borrow from a licensed moneylender to ensure that your loans are safe and worry-free. Their total interest payment will not burden you in the repayment period, unlike predatory loan sharks who will drag you into debt and ruin.
You will need the following documents
- Identity card/NRIC
- Proof of Residence (current utility bill, a letter addressed to you or tenancy agreement)
- Proof of employment (certificate of employment or recent 3 months payslip)
- SingPass (to log into your CPF, HDB, IRAS website)
- Copy of the “Option to Purchase” (OTP) of the home you are renovating
- Invoice from your renovation vendor