What is a Loan-To-Value (LTV) Limit and how it affects your Housing Loan
In Singapore, the government tends to lean towards being prudent in managing money and finances. Because of this general principal of prudence, the Government in Singapore has set rules to prevent homebuyers from borrowing too much when buying a house. These rules, known as the loan-to-value (LTV) limit, decide the maximum amount a home buyer can borrow compared to the property's price or its market value, using the lower of the two.
For HDB Loans
For loans from the Housing Development Board (HDB), the LTV limit was reduced to 85% from 90% in December 2021, and then again in September 2022 to 80%. So, if you're getting an HDB loan, you can borrow up to 80% of the house's price or value.
The lower the LTV, the more you need to pay upfront when you buy a property. This payment can be made with cash, funds from your Central Provident Fund (CPF), or a combination of both.
For example, If you're buying a HDB flat worth S$800,000 and chose to use a HDB Loan with an 80% LTV limit, you will be able borrow up to S$640,000 (depending on your income assessment). The remaining S$160,000must be paid with Cash/CPF as a down payment.
For bank loans, it is slightly more complicated as the LTV limit changes based on several factors.
The current LTV limit is now 75%. This means if you're buying a house, the bank can lend you up to 75% of the house's price or value, and you will need to pay the remaining 25% as a down payment.
For your first property loan, if your loan term is 30 years or less (and doesn't go past age 65), the LTV limit is 75%. But if the loan term is over 30 years or extends past age 65, the LTV limit drops to 55%.
For a second property loan, the LTV limit is lower, at 45% for loans of 30 years or less, and 25% for longer loans or loans that extend past age 65.
For a third property loan, the LTV limit is even lower, at 35% for loans of 30 years or less, and 15% for longer loans or loans that extend past age 65.
If you have an outstanding housing loan but plan to sell your HDB flat to upgrade or downsize
If you have an outstanding loan but intend to sell your HDB flat to upgrade or downsize, you will be treated as if you have no outstanding loans for your new property. However you will need to provide documents such an approval letter from HDB and a letter of undertaking to sell your current flat.
Increasing your LTV limit:
Property with a higher valuation: Since the LTV Limit is assessed based on the valuation of the property, a property that as a higher valuation could result in a higher LTV limit as well.
Apply for the Loan with someone else: Having two incomes used for loan assessment can potentially increase your LTV Limit
Pay a higher down payment: By paying a higher down payment, you effectively lower your loan amount, increasing your LTV Limit.
Pick a shorter loan tenure: This also effectively lowers your loan amount, therefore increasing your LTV Limit.
Getting a better credit score: Especially for a bank loan, a Better credit score could potentially convince the banks the give you a better loan package with a higher LTV Limit.
Reduce your debt-to-income ratio: Banks use Debt to income ratio as a factor for consideration as well during loan assessment. A lower Debt to income ratio could result in a higher LTV Limit.
STILL NEED HELP?
Call Jboi for a free and non-obligatory consultation Session!
WhatsApp us +65 8923 1508 or Email us jboihomes@gmail.com
