Meeting the HDB home loan eligibility criteria is one thing, qualifying for the full 75% Loan-To-Value (LTV) ratio is another. If you’re a soon-to-be homeowner buying an HDB flat, you’re probably considering an HDB loan as an option to finance your flat purchase.
With the Loan-to-Value limit for HDB loans being tightened in the latest round of property cooling measures, the maximum loan amount is now 75%. However, not everyone will qualify for this full loan. In this article, we’ll explain why and the options for financing your home.
Why You Might Not Meet the 75% HDB Home Loan Eligibility
If you were offered a lower loan amount, don’t be too demoralised or give up on your home ownership dreams.
Instead, refer to our guide below to understand why you may have landed in this scenario of not meeting the full HDB home loan eligibility.
1. You Do Not Meet the MSR And/Or TDSR Requirements
For example, consider Peter and Mary, a young couple who earn a gross monthly household income of $5,500. This qualifies them for an HDB loan as they are under the income ceiling stated to meet the HDB loan criteria.
They already pay $700 monthly on a new car and have their hearts set on buying a large resale flat in Bishan, valued at $700,000. Unfortunately, they couldn’t get the full 75% loan from HDB as they did not meet the HDB home loan eligibility criteria. Why?
To be eligible for any mortgage loan in Singapore for an HDB flat, you must meet the requirements of a 30% Mortgage Servicing Ratio (MSR) and a 55% Total Debt Servicing Ratio (TDSR). They are calculated as follows:
- MSR = (Monthly repayments on property loans / Gross monthly income) x 100%
- TDSR = (Borrower’s total monthly debt / Gross monthly income) x 100%
In Peter’s and Mary’s situation, their current TDSR before the loan is 12.7%. However, the 75% HDB loan amount for their flat would amount to $525,000, and even assuming they chose a 25-year loan tenure, their monthly repayments would be $2,382.
$2,382 in monthly repayments on a $5,500 income means an MSR of 43.3% and a TDSR (including the car instalments) of 56%. This is beyond the permitted limits, and neither HDB nor any bank would offer them such a big loan. Hence, they do not meet the HDB home loan eligibility for the full loan, even though their gross household income does meet the HDB loan criteria.
If you are unable to meet the TDSR and MSR requirements like Peter and Mary, you have a few options. The easiest option would be to buy a more affordable property so that you can qualify for the full HDB home loan eligibility.
You shouldn’t buy outside of your means, especially for your first home. Think of it as a starter home from which you can launch your second property purchase once you manage your finances better and have a better income to manage your debts. You can use tools like our affordability calculator to see what you can afford and better budget for your property purchase.
2. You Have an Abundance of CPF OA Savings Which You Must Use
When you buy an HDB flat and take an HDB loan, a necessary first step is the wiping out of your CPF Ordinary Account savings (save for $20,000 you are allowed to keep in there). According to HDB, the “remaining balance in the CPF OA must be used to pay for the flat purchase, before they can take an HDB housing loan.”
For the typical young couple buying a BTO flat, this is not an issue as they have not had that much time to start earning and saving. They would meet the HDB loan criteria, and the 75% HDB loan amount would take them the rest of the way to their property’s price.
However, for those who are buying BTO flats later in life and/or who have much more in their CPF OA, it may not be the case. Even though they may meet the HDB loan criteria, HDB may not offer the full 75% loan if their CPF can cover it.
Hence, meeting the HDB loan criteria and qualifying for an HDB loan may be good for those who want to minimise cash downpayment. However, it can be undesirable for those who would rather grow their savings in CPF and accrue interest.
In this case, it might be favourable for you to consider a bank loan instead, as banks do not have such criteria.
In What Ways Can a Bank Loan Be a Better Option?
1. Bank Loans Offer More Choices
While banks can sometimes be stricter when it comes to missed payments and contract breaches, bank loans generally offer more options and choices and are less stringent than HDB loan criteria. This makes it easier for you to find a package most suitable for your needs.
There is only one HDB loan, with an interest rate that has remained unchanged for over 10 years and fixed terms and conditions. On the other hand, there is a huge variety of bank loans, which allow you to decide on your preferred interest rate, commitment period, and other contractual terms.
Furthermore, since the HDB loan rate is predetermined, it’s impossible to take advantage of favourable market conditions when the opportunity arises.
For example, interest rates are expected to gradually fall in 2025. Already, the lowest mortgage rate on the market is 2.50% for a 3-year fixed-rate home loan (based on the lowest interest rate offered in the first year, as of 12 September 2024), lower than the 2.6% mortgage rate offered by HDB.
2. Saving for Retirement by Letting CPF OA Savings Accrue Interest
Unlike HDB loans, bank loans do not have a set criteria of how much CPF OA savings you must use or have to qualify for a bank loan. Furthermore, you can make your monthly repayments for your bank loan with cash, CPF OA savings, or a mix of both.
If you have a low-risk appetite, you can let your CPF savings accrue and set it aside for a rainy day with the dependable CPF OA interest rate of 2.5% per year. You are also afforded more financial flexibility should you decide to use your CPF OA savings for other matters, such as your children’s university loans and so on.
It’s also important to note that if you choose to sell your property in the future and have used your CPF OA savings to finance your home, you’ll have to refund the CPF principal amount withdrawn and its accrued interest.
Potential Drawbacks of Bank Loans
1. Higher Upfront Cash Downpayment
When you opt for a bank loan, you must pay at least a 5% cash downpayment for your property purchase. This is no small sum, which is why this can be a strong deterrent for younger couples who cannot afford the upfront amount. There are no such criteria for those who opt for an HDB loan.
2. Cannot Switch Back to an HDB Loan
If you choose an HDB loan initially, you can always refinance to a bank loan whenever you’re ready. However, if you choose a bank loan from the go, you cannot switch back to an HDB loan. This is why some first-timers feel ‘safer’ going for an HDB loan for their first mortgage before subsequently refinancing to a bank loan for cheaper rates.
If you are thinking of refinancing from an HDB loan to a bank loan, make sure you do the math and seek advice to ensure that you are really getting a good deal.
Still Unsure? Let Us Help
We know picking the right home loan for your financial situation can be a complex, time-consuming process. So, let us help! Our friendly and dedicated Mortgage Experts can assist you with shopping for the best rates and recommend the most suitable mortgage packages for your needs.
Homeowners are often burdened by the paperwork and research needed to get a good bank loan, but our experts can relieve the stress. Best of all? It’s free!
Chat with us on WhatsApp
Fill up an online form
