Bank Home Loan Singapore: Check your Home Loan Eligibility Using This 10 Bank Loan Criteria
Updated: Oct 26, 2021
Having worked as a mortgage specialist previously and successfully helped more than 200 property owners obtain their bank home loan in Singapore, I have also personally encountered a few buyers whom have had to forfeit their OTP deposit or booking fee for their property purchase.
This was because they did not check on their home loan eligibility Singapore upfront first and thus, was unable to obtain approval for their bank home loan Singapore application.
What was particularly of concern to me was that they had already gone through a long and tedious process to search for their dream home, engaged in multiple property viewings, price negotiations completed, and to have everything end up in null.
Not only was money wasted, but their precious time as well and all these could have simply been prevented by understanding how banks approve home loans and the bank loan criteria that they look at.
This is especially important for new launch condo, resale condo, and landed property buyers as the booking fee or OTP deposit is 5% on the purchase price, and 1% on the purchase price respectively.
This can come up to a considerably large sum of monies given the high purchase price of private properties these days.
In this article, I have collated the most basic top 10 bank loan criteria in Singapore that banks look at to give you clarity into what banks look at when they approve bank home loan applications, and help you to improve the chances of your bank home loan eligibility approval before you even start on your property journey:
Criteria #1: Type of Property You Are Buying and Home Loan IPA
It is first important for the banks to know the type of property you are looking at to purchase. Bank home loan mortgage calculations are entirely different for buying a HDB, executive condominium (ECs), or buying a private property in Singapore.
Therefore, it would be better to first decide on the type of property you would like to go for.
If you are unsure, you can speak to property agents in Singapore to understand the differences in the above-mentioned type of properties and the price range you can expect in the different locations in Singapore.
Prior to buying a property, you should also do up your loan In-Principle Approval (IPA) with one of the banks in Singapore to check how much bank home loan you are eligible for first.
Likewise, the banks will also ask you what type of property you are looking at first before they can grant you the IPA on that property scenario basis.
If you are still undecided on the type of property at this point in time, you may ask for an IPA based on the few potential scenarios you could possibly be looking at to buy example resale HDB or condo.
Criteria #2: Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) Home Loan Formula
The Mortgage Servicing Ratio - MSR is a formula that the banks use for HDB and EC property purchases mainly. This means that your future home loan mortgage installment cannot exceed 30% of your monthly income.
The Total Debt Servicing Ratio - TDSR is a formula that the banks use for mainly private property purchases which includes buying a condo or landed property in Singapore. HDB and EC purchases will also involve the TDSR calculations as a secondary filter.
TDSR means that your future home loan mortgage installment plus your personal loan/car loan installments cannot exceed 60% of your monthly income.
Criteria #3: Number of Property Owners and Home Loan Borrowers
If there is only 1 owner for the property, then this 1 owner will definitely have to be the borrower of the mortgage loan as well.
If there are 2 owners for the property, it can either be on the basis of 2 borrowers or 1 borrower only.
Should you choose to adopt a 1 borrower scheme only, the banks will only use the age, income, and credit bureau records of that 1 borrower in their bank home loan calculations and exclude the other person’s even if the other owner is earning an income as well.
The other property owner’s age, income, and credit bureau records will also be omitted in the bank home loan calculations and bank loan criteria.
If there are 3 owners, it can also either be on the basis of a 1 borrower, 2 borrower scheme, or all 3 to step in as co-borrowers. Likewise, whoever is the borrower will have their age, income, and credit bureau records taken into account in the bank loan criteria and calculations.
Tip - All non-borrowers can still utilize their CPF in the property downpayment and home loan mortgage monthly installments repayment as long as you are an owner. All owners are allowed to do so even if they are not a borrower.
Another Tip – One other important thing to take note of is that if you are not an owner of the property, you cannot be a borrower.
Lastly, do be aware that a few banks in Singapore strictly require all owners to step in as loan borrowers even though the above-mentioned scenarios are allowed by most banks.
Therefore, do check with your property agent or mortgage broker properly first before deciding on which bank to take up your bank home loan with.
Criteria #4: Income of Bank Home Loan Borrowers
For salaried employees in Singapore, the banks will request for your latest 3 months payslips and the latest 12 months CPF contributions to tally with your payslips, recognizing them 100% into their bank home loan mortgage calculations.
Your bonuses, allowances will be cut by 30% and the banks will only recognize 70% of these variable sources of income as bonuses and allowances are not always constantly the same.
For self-employed personnel, the banks will only recognize 70% of your latest income tax - Notice of Assessment declared for the latest year as your monthly income.
An important thing to take note of is that you have to be 2 years minimally self-employed in the same company or industry to have your income taken into account as the basic bank loan criteria.
Criteria #5: Age of Home Loan Borrowers and Income Weighted Average Age (IWAA)
If there is only 1 borrower, they will use that person’s age in their home loan mortgage calculations.
If there is more than 1 borrower, they will use this formula called the Income Weighted Average Age (IWAA). This means that the overall age is tilted towards the borrower who is earning a larger pie of the combined total monthly income of both borrowers.
Criteria #6: Loan to Value (LTV) Ratio and Bank Home Loan Structure
After doing up your loan IPA and knowing how much loan you and/or your co-borrowers are eligible for, it is important to know this bank loan jargon called Loan to Value (LTV).
Loan-to-value (LTV) refers to the percentage of bank home loan you are taking on the purchase price of the property. So, for example, if you need to borrow a 550k home loan on a 1 million purchase price property, then your LTV ratio is 55%.
The maximum LTV for property purchases in Singapore is capped at 75% of the purchase price. A typical bank home loan structure for 75% Loan to Value is as follows:
Mandatory cash - 5% of purchase price
CPF/cash – 20% of purchase price
Bank Home Loan – 75% of purchase price
If you can qualify for a 750k loan amount based on your IPA results, then you can look at a 1 million purchase price property if you have 250k cash and CPF on hand.
Do note that you can borrow lesser than 75% bank home loan if you have more cash or CPF to spare as the downpayment. You will have to decide upfront how much bank home loan you need to borrow as it will determine the interest rate packages that you will be quoted by the banks.
Alternatively, you can also adopt this LTV structure if you want to have a longer bank home loan tenure, which I will touch on in the next point in bank home loan tenure:
Mandatory cash - 10% of purchase price
CPF/cash – 35% of purchase price
Bank Home Loan – 55% of purchase price
Criteria #7: Bank Home Loan Tenure
The maximum age that anyone can borrow up to when buying a property in Singapore is either up to age 65 or up to age 75 depending on the LTV that you are planning to borrow.
What this means is that if you are borrowing a 75% loan from the banks, your home loan tenure will be 65 – your age/IWAA, or max 25 years for HDB purchases and maximum 30 years tenure for ECs and private property purchases; whichever is shorter.
If you are borrowing a 55% loan from the banks, your home loan tenure will be 75 – your age/IWAA, or max 30 years for HDB purchases and max 35 years for ECs, and private property purchases; whichever is shorter.
The loan tenure also affects the amount of bank home loan that you will be able to borrow. The reason is because the shorter the loan tenure, the higher your bank home loan monthly installments will be. Therefore, your TDSR might face problems, causing you to only be able to borrow a smaller loan amount.
Criteria #8: Current Home Loans and Owned Properties
Another bank loan criteria that the banks will take note of is the number of existing home loans that you have currently.
If you already have an existing home loan, the next LTV that you can get is no longer 75% of the purchase price but only 25% to 45% of the purchase price, depending on the loan tenure you will like to obtain.
If you are planning to sell HDB and buy condo next, do make sure that you have the exercised OTP of your current flat so that you can still obtain the full 55% or 75% Loan to Value, depending on the loan tenure that you would like to have.
Criteria #9: Credit Bureau Scoring of Home Loan Borrowers
Your credit bureau is a comprehensive consumer credit report that shows all your credit cards, credit spending, personal loans, and car loans with all retail banks and major financial institutions in Singapore.
You can buy your credit bureau Singapore report for S$6.42, inclusive of GST, here.
The credit bureau report is used to assess your creditworthiness and check if your credit repayment history for your credit cards and personal loans has been prompt and in full.
This helps the banks evaluate the level of risk that they will face and the probability of you defaulting, upon lending out monies to you.
Through information pooling, the bank that you’re applying for your mortgage loan with will be able to access your credit bureau to look at the following
- Your credit rating and score
- The promptness of repayment records for all your credit cards, personal loans and car loans
- The likelihood of you defaulting on the bank home loan
- Any outstanding amount that you owe to any of the bank or financial institution in Singapore
Criteria #10: Personal Loans, Car Loans, Credit Card Usage of Home Loan Borrowers
Last but not least, the banks will look at your monthly commitments and take them into consideration in their bank home loan calculations.
This is to ensure that you are not overly leveraged on debt and lowers the probability of default on home loan monthly installment repayments.
If you want to get a higher home loan amount, do ensure that you pay off all your personal loans, credit card spending, and car loans on time and in full as much as you can.
In summary, these are the most fundamental bank loan criteria that banks will look at when it comes to approving your bank home loan.
Always remember to do up your loan IPA first with one of the banks to check your home loan eligibility before making rash moves and place a deposit on any property. This will prevent a waste of time and money should your bank home loan not be approved.
Comment below how many of these bank loan criteria you are aware of to successfully obtain a bank home loan in Singapore.
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