Making your first home purchase is a major milestone in anybody’s life. Even though it is a significant financial commitment, the good news is that, for buyers of HDB Build-to-Order (BTO) and resale HDB flats, there are a slew of home loan options available on the market, namely the HDB housing loan and various bank loans. This means that it may be financially easier for you to purchase and move into a house to call your own.
In this home financing guide for HDB properties, we will cover:
- What are the different home loans available?
- Who is eligible for these home loans?
- How much can I afford?
- What’s the home loan application process like?
What Are the Different Home Loans Available?
Put simply, if you are purchasing a BTO or a resale HDB flat, there are two types of home loans available to you: you either borrow from HDB itself or you can borrow from a bank of your choice. Both options differ on several fronts, including interest rates, limits on the loan-to-value (LTV) ratio, as well as the minimum down payment required.
1. HDB Loan
- Interest rate: The interest rate is currently fixed at 2.6%, or 0.1% above the interest rate of your Central Provident Fund’s (CPF) Ordinary Account. While the rate might seem a bit high at first, keep in mind that HDB’s loan interest rate is relatively stable, and hasn’t changed in over 15 years.
- Minimum loan: None.
- Down payment: An HDB loan only requires buyers to pay up to 10%; this can even be paid using your CPF. However, CPF requires buyers to use all their CPF OA funds (leaving only $20,000 each), so while the LTV is 90%, the maximum loan they can take may be lower if they have significant CPF savings which they’re mandated to use.
- LTV limit: For new flats, this is up to 90% of the purchase price. For resale flats, this is up to 90% of the resale price or value, whichever is lower.
- Penalties: Penalties are less harsh for repayments — ideal for risk-averse HDB home buyers.
2. Bank Loan
- Interest rate: The interest rate of bank loans can fluctuate and it really depends on the general economic situation, however it has typically been lower than what’s offered on HDB loans in recent years with current interest rates on some bank loans as low as 1.4%.
- Minimum loan: Yes, and it varies across different banks.
- Down payment: 5% of the purchase price in cash plus 20% in cash and/or CPF OA funds
- LTV limit: Up to 75%.
- Penalties: This applies for both late payments and early repayments.
For a more detailed comparison of the two, read our article: Home Loans in Singapore: HDB Housing Loan vs Bank Loans
Who Is Eligible for the Loans?
HDB loan eligibility
Generally, you can obtain an HDB loan if you meet the following criteria:
- Citizenship: At least one buyer is a Singaporean citizen.
- Age: The buyer is 21 years or older.
- Monthly income ceiling: $14,000 for families; $21,000 for extended families; $7,000 for singles.
- Private property ownership: The buyer cannot own (or have disposed of) any private residential property in the 30 months before the date of application for an HDB loan. On top of that, the buyer also cannot own more than one market/hawker stall or commercial/industrial property. If the buyer owns just one of the above, he or she must be operating the business and have no other sources of income.
- Household status: The buyer cannot have previously taken two or more housing loans with HDB. If the buyer has previously taken a housing loan from HDB, their last owned property must not have been a private residential property.
You can read our article on HDB Loan Eligibility: What HDB Flat Buyers Need to Know for more information.
Bank loan eligibility
A bank loan, on the other hand, is easier to qualify for since there are fewer restrictions.
First, based on your income and current liabilities (if any), the bank will decide how much it will loan to you — no Option to Purchase required. This is called an in-principle approval (IPA) or approval in-principle (AIP). All you have to do is to provide your income-related documents, and the bank will take a look and give you an approximate amount that they can lend you. They will also assess your credit score.
How Much Can I Afford?
In order to figure out how much you can afford, a few assumptions have to be made. Let’s say you are purchasing a five-room HDB flat that’s worth $400,000.
If you are taking up an HDB loan, you can borrow up to 90% of the HDB flat’s value, or $360,000. The remaining 10%, or $40,000, is the amount of down payment you have to pay. However, if you have enough saved up in your CPF, it is possible to cover the down payment entirely, which means that you do not have to fork out a single cent up front.
On the other hand, if you are taking up a bank loan, you can borrow up to 75% of the HDB flat’s price or valuation, whichever is lower, or $300,000. The remaining 25%, or $100,000, is the amount of down payment you have to pay, of which a minimum of 5% (5% of the purchase price in cash plus 20% in cash and/or CPF OA funds) of the flat’s value, or $20,000, has to be paid in cash.
It is also important to keep in mind that CPF Housing Grants are available to eligible buyers as well. For first-time buyers, it is possible to receive up to $80,000 in grants — provided that you meet the listed criteria.
The Bottom Line
Purchasing your new HDB home may be the biggest financial decision you’ll ever have to make. It’s important to choose the financial option that will best suit your needs. Not only is the application process for an HDB loan and a bank loan different, the benefits of each type of loan are as well. Whether it’s less money down with an HDB loan or typically lower interest rates with a bank loan, the decision will have an impact on your finances for years to come.
For more recommendations and advice tailored to your financials needs and preferences, speak to PropertyGuru Finance’s Home Finance Advisors. And for the best information on property financing, look no further than our home financing guides.
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