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# How much can you borrow for your home loan?

Whether you’re a first time buyer or you’re an old hand, here’s a summary on how home loans work in Singapore.

One of the biggest concerns, when buying a home, is the initial cash outlay. Even a small percentage of the property value can be a massive sum, so most borrowers want to minimise their down payment. Here’s a rundown on how much you can usually borrow:

The Loan To Value (LTV) Ratio

The amount you can borrow to finance your home is called the LTV ratio. An LTV ratio of 75 per cent, for example, means that you can borrow up to 75 per cent of your property price or value, whichever is lower. For HDB loans, the maximum LTV is 90 per cent. The remaining 10 per cent must be paid through cash, your CPF Ordinary Account (CPF OA), or a combination of both. For bank loans, the maximum LTV is 80 per cent. Another 15 per cent can be paid through a combination of cash or your CPF OA. For bank loans, an absolute minimum of five per cent must be paid in cash.

How Does This Work?

Let’s say you are buying a resale flat, with a property value of S\$500,000. However, the actual property price is S\$515,000. This difference of S\$15,000 is called the Cash Over Valuation (COV).

Using an HDB Concessionary Loan, you could borrow a maximum of S\$450,000 for the flat (90 per cent of S\$500,000). Up to another S\$50,000 can be paid through your CPF OA. Note that the remaining amount – the COV of S\$15,000 – is not covered by the loan at all. You will have to pay the COV in cash. Using a bank loan, you could borrow a maximum of S\$400,000 (80 per cent of S\$500,000). You can then use up to S\$75,000 of your CPF OA monies (15 per cent of S\$500,000). The remaining amount (S\$40,000, inclusive of COV) will have to paid in cash. Note that, under Monetary Authority of Singapore (MAS) regulations, you cannot take a bank loan to finance the down payment.

The Maximum LTV Ratio Is Not Guaranteed

As mentioned above, the maximum LTV for an HDB loan is 90 per cent, whereas the maximum LTV for a bank loan is 80 per cent. However, HDB and the banks are not required to give you the maximum LTV. They can choose to lower the LTV, if they feel it would be appropriate. Some other factors that can lower your LTV include:

•    Outstanding home loans
•    Remaining lease on the property
•    Location and state of the property
•    Your age and loan tenure

1. Outstanding Home Loans

If you have one outstanding home loan, the LTV of your second home loan is capped at 50 per cent. Of the 50 per cent down payment, half can come from your CPF, and the other half must be paid in cash. For example, say you already have a home loan, but you want to take a second home loan to purchase an S\$800,000 condominium unit. You would be able to borrow S\$400,000 (50 per cent of S\$800,000). Of the remaining S\$400,000, up to S\$200,000 can be paid with your CPF. The remaining S\$200,000 must be paid in cash. If you already have two outstanding home loans, and want to take a third, the LTV ratio is capped at 40 per cent. Another 35 per cent can be paid with your CPF, and a minimum of 25 per cent must be paid in cash. To use the above example, say you are buying the S\$800,000 property with two outstanding home loans. you would be able to borrow a maximum of S\$320,000 ( 40 per cent of S\$800,000). You can use up to S\$280,000 from your CPF, and S\$200,000 must be paid in cash. Note that, if the loan exceeds the age limit or a 30-year loan tenure (see points 4 and 5), the LTV can fall even lower.

2. Remaining Lease on the Property

For properties that only have 36 to 40 years left on the lease, the maximum LTV is often capped at 60 per cent. However, you can still pay up to 15 per cent of the property price or value (whichever is lower) with your CPF. For properties with 35 years or less on the lease, home loans are usually not possible. In addition, you cannot use your CPF funds for properties with 30 years or fewer on the lease. (You may have read about such properties being purchased through monthly repayments. This is often a case where the buyer has negotiated a private contract with the seller, via a law firm. Alternatively, it may be a special loan for wealthy buyers, who have a high net worth and access to private banking facilities.)

3. Location and State of the Property

The LTV limit can decrease significantly, based on the location and state of the property. For example, properties that are located abroad, or in especially undesirable locations, may cause you to get a lower LTV limit. Properties that are run down, or have major defects (e.g. a condominium in which residents are currently suing developers for defects) may also cause lenders to offer a lower LTV.

4. Your Age and Loan Tenure

The LTV will be capped at 60 per cent if the loan tenure, plus your age, exceeds 65. Likewise, the LTV will be capped at 60 per cent if the loan tenure exceeds 30 years. If you also have outstanding home loans (see point 1), the loan tenure can fall even lower, to 40 or even 20 per cent.