Whether you are relocating overseas to Singapore or just flying the nest for the first time, purchasing a home as a first-time buyer is an exciting process. But it can be easy to underestimate the financial burden of taking the first step onto the property ladder. With a number of government schemes and incentives designed to streamline the entire buying and selling process, it has never been easier to navigate the real estate market in Singapore. Continue reading to find out everything you need to know about home loans in the Garden City.
Lenders
In Singapore, a home loan can be borrowed from a number of different lenders. If you are purchasing an HDB flat, you can borrow a home loan from the Housing and Development Board itself or from any Singapore-based bank. A Hong Leong Finance Home Loan, for example, can be offered for both HDBs and private residential properties. There are a number of steps to take into account before you make your decision. For example, you can only apply for an HDB loan if your monthly income is less than $14,000, or $7,000 for single occupants and $21,000 for extended families. You must also not have owned private property within the last 30 months beforehand. Lastly, you must be able to afford the down payment and decide whether or not you want to use your CPF savings.
Interest rates
Interest rates differ depending on whether or not you take out an HDB loan or a bank loan. With HDB loans, the interest rate on your mortgage is the standard rate of 2.6% per annum. Bank loans benefit from a wider range of different loan packages with different interest rates. They do, however, allow homeowners to borrow with interest rates lower than 2.6%. This can lead to greater savings and higher interest rates for any separate savings accounts. Most banks offer fixed rate, floating rate, and floating board rate mortgages. Floating rate loans typically benefit from lower interest rates than fixed rate ones but can fluctuate from time to time. Bank loans, as a whole, offer lower interest rates than HDB loans but interest rates can also expire after a few years. You must weigh up the pros and cons of each before you make a final decision.
Borrowing amount
The borrowing amount you are eligible for depends on a number of factors. This includes the Loan-To-Value ratio, or LTV, of your financer, your Total Debt Servicing Ratio, or TDSR, and your Mortgage Servicing Ratio, or MSR. The LTV ratio is the name given to how much of your future home’s asking price you can borrow. The TDSR refers to the portion of a borrower’s gross monthly income that contributes towards monthly repayments. Finally, the MSR is an arrangement where a third party promises to collect mortgage payments on behalf of the lender in exchange for a fee.
Monthly repayments
To calculate how much of your monthly repayments you can afford, you may benefit from enlisting the help of a home loan calculator. If you have opted for a small home loan tenure, your monthly repayments will be smaller and much more manageable. Singaporeans also have the option of tapping into their CPF Ordinary Account savings to repay home loan instalments. There are several benefits associated with each option. CPF payments suit homeowners that rely on cash payments for a number of expenses in their day to day lives. You would, however, end up sacrificing the high interest rate on your CPF. You are also required to return any CPF savings as well as interest when you eventually sell your home. Repaying with cash, on the other hand, can allow you to maximise the interest rate on your CPF savings and pocket the money from the property sale.
Non-Singaporean residents
While this guide applies to most homeowners in Singapore, the rules tend to differ slightly for non-native residents. For example, they are only permitted to purchase properties that have been preapproved by the Singapore Land Authority with an additional stamp duty of 15%. This is also the case for first-time foreign buyers on the island. Nationals from the United States, Switzerland, Norway, Iceland, and Liechtenstein, however, are exempt from this rule under the Free Trade Agreements. It is only once the property has been approved for purchase that the mortgage application can begin. This step in the buying process is the same for both local Singaporeans and foreigners relocating to the country.
When it comes to purchasing a property in Singapore, there are a number of factors you must familiarise yourself with. Home loans should be one of the first considerations during your property search. You must research lenders, interest rates, borrowing amount, monthly repayments, as well as what the process entails for non-Singaporean residents.
