Are You Eligible to take a HDB concessionary loan?
Purchasing a Resale or Brand New HDB flat but unsure if you are even eligible to the HDB Loan? Most people who are looking to purchase their very first HDB Flat are in a life stage where we are progressing well in life and making some decent income. How much income is too much for us to be eligible for the HDB loan? One can opt for a bank loan if your income ceiling exceeds the requirement or consider the HDB concessionary loan, commonly referred to as an HDB loan.
Here's what you need to know about securing an HDB Loan when purchasing a HDB flat in Singapore!
Eligibility Criteria for an HDB Concessionary Loan
Eligibility for an HDB loan is subject to income limitations. For regular families, the total household income must not exceed S$14,000 per month. For extended families, this limit is increased to S$21,000. The eligibility criteria vary based on the family composition, as detailed in the following:
Families with single working children: The combined income of the parents and the single working child must not surpass S$14,000.
Families with a married child: The total income of the parents and the married child's family should not exceed S$21,000.
Note that these income ceilings include widows/widowers and divorcees, and also encompasses those applying with their fiancé/fiancée.
If your household income exceeds the above limits, you'll need to apply for a bank loan instead as you will not be eligible for the HDB Loan.
Interest Rate and Mortgage Servicing Ratio
The interest rate for an HDB loan is typically set at 0.1% above the CPF Ordinary Account (OA) interest rate. As of now, the CPF OA interest rate at 2.5%, thus the HDB loan interest rate stands at 2.6%. It has been this way for many years but there is no guarantees it will remain at 2.6% forever!
For both HDB flats and Executive Condominiums (ECs), your monthly mortgage payments are capped at 30% of your monthly income. This is known as the Mortgage Servicing Ratio (MSR). For example, with a combined monthly income of S$8000, your maximum monthly mortgage payment for an HDB flat would be capped at S$2,400.
It is also good to note that as of September 30, 2022, HDB loans are subjected to a “stress-test” interest rate of 3%. This Stress Test is purely used for calculation for the maximum loan you can take and isn’t the actual interest you will pay.
Estimating Your Loan Amount
To understand the potential loan amount you can receive from HDB, we need to look at several factors that are considered. This includes age, income, Finances, and existing loans or financial commitments like student or car loans or credit card debts. Your age and income significantly influence the maximum loan amount, as younger applicants with more working years ahead are likely to receive higher loan amounts. The repayment period is limited to the shortest of 25 years, the buyer's age until 65, or the remaining lease of the flat minus 20 years.
Speak to a trusted real estate professional and work together with them to work out a plan and estimated loan amount. Alternatively, with the new implementation of the HFE letter, you will easily know your maximum loan amount when you receive the results of your application.
Loan-to-Value (LTV) Limit
The LTV limit determines the maximum loan amount relative to the property's value, also plays a role. As of recent adjustments, the LTV limit for HDB loans is set at 80%, meaning a 20% down payment is required. Read more on the LTV Limit here.
Insurance Policies for HDB Housing Loans
Purchasing HDB's fire insurance policy and the Home Protection Scheme (HPS) is mandatory for HDB loan borrowers. The fire insurance covers internal structures and areas provided by HDB, while HPS protects against loan default due to terminal illness, permanent disability, or death.
Exploring Loan options and Refinancing
It is always good and beneficial to explore all financing options including bank loans and other understand refinancing possibilities for better terms or interest rates. One of the many questions HDB Loan borrowers ask is if they should borrow the Maximum they can. More often than not, you should go for Maximum because HDB does not charge an early repayment penalty! Meaning if you have extra cash at the end of the year and wish to repay your loan earlier, you can. However, if you choose to shorter loan period or lower loan amount, you are unable to request to increase it later on. In order to stay informed about market trends and changes, it would be prudent to seek advice from your trusted real estate agent or partner, helping you to make the most suitable choices for your home loan.
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