Many Singaporeans don’t bother with the fine details of HDB loans, until it’s too late. Hence, the mad last-minute rush for bank loans or the sudden panic when the down payment is bigger than expected. Here are some useful things before you buy that home:
THE HDB LOAN DOESN’T ALWAYS COVER 90 PER CENT OF YOUR FLAT PRICE
Do note that HDB loans can cover up to 90 per cent of your flat price or valuation, whichever is lower. If you buy a resale flat at higher than the valuation, you’ll have to top up the difference in cash.
For example, say you agree to buy a resale HDB flat for S$600 000. Later, the HDB valuation turns out to just be $580,000. The difference of S$20 000 isn’t be covered by the HDB loan – you have to pay it in cash. Do compare the prices of surrounding flats. This will keep you aware of the correct market rate for the area.
Remember, if your flat price is above the valuation, you have to top up the difference in cash.
Second, always remember that HDB doesn’t have to loan you the full 90 per cent. If your credit score is bad, for example, you might end up with 75 per cent or even less. Be ready to top up the difference in cash.
THERE IS A 30-MONTH WAIT TIME IF YOU’VE JUST SOLD PRIVATE PROPERTY
If you just sold off a private property, you need to wait at least 30 months before you’re eligible for an HDB loan. This also applies to private property that was inherited, or given as a gift.
If find yourself in such a situation, remember to set aside money for temporary accommodations after you sell.
NOT EVERY TYPE OF INCOME IS CONSIDERED WHEN DETERMINING YOUR LOAN AMOUNT
Note that certain types of income won’t help you to secure an HDB loan. These include the following:
- Claims, reimbursement, and expenses
- Director’s fee
- Dividend income, and interest from deposit accounts
- Income from overtime work
- National Service allowance
- Occupier’s income
- Overseas cost of living allowance
- Rental income
- Scholarship overseas allowance
THE AGE OF THE FLAT YOU’RE BUYING AFFECTS HOW MUCH OF YOUR CPF YOU CAN USE
If the remaining lease on the flat is 29 years or under, you cannot use your CPF money to buy it.
If there are 30 to 59 years lease remaining, you can use your CPF money; but only if the remaining lease will last till you are 80 years old. Also, note that you may not get the full 90 per cent financing.
THE INTEREST RATE FOR HDB LOANS IS NOT REALLY “FIXED” THE ENTIRE TIME
HDB loans are loosely referred to as being “fixed” because they have not changed for a long time. However, it is not true that your HDB loan interest rate cannot change. The interest rate on an HDB loan is 0.1 per cent above the prevailing CPF interest rate (currently, the HDB loan rate is 2.6 per cent per annum). While the CPF rate rarely changes, it is subject to quarterly review and can move.
YOU MAY BE ALLOWED TO DEFER THE INCOME ASSESSMENT
If you’re a couple who are both full-time students buying for the first time, or you’re a National Serviceman, you may be able to defer the income assessment. This is on the condition that you have completed your studies or NS in the 12 months before your flat application.
In such cases, HDB can defer you income assessment for a loan (as well as for the various CPF Housing Grants) until just before key collection. Check out the HDB website to see if you qualify.
IF YOU’RE SELF-EMPLOYED, MAKE SURE YOU ACCURATELY DECLARE YOUR INCOME TO IRAS
Say you run a cash business of your own: For example, you are paid in cash to give cooking classes, tutor students, or do odd job. Chances are, you don’t receive regular payslips from your client.
In such a situation, HDB has no way to accurately assess your income and give you a loan. Your best bet in such a case is to accurately declare your income to the Inland Revenue Authority of Singapore (IRAS), and be taxed accordingly. You can then use your IRAS tax statements for your income assessment.
Also, do ensure there is no discrepancy between your tax statements and declared income. You can’t claim an annual income of S$36,000 with the IRAS, but tell HDB you actually make S$50,000 a year. If the government decides you’ve been lying about your income, it will result in more dire consequences than a rejected loan application.
IT’S NOT JUST THE TDSR, THERE’S THE MSR TOO
The Mortgage Servicing Ratio (MSR) restricts your home loan repayment to just 30 per cent of your monthly income. Note that this is different from the Total Debt Servicing Ratio (TDSR).
The TDSR restricts your total loan repayments (inclusive of personal loans, car loans, credit card debts, etc.) to 60 per cent of your monthly income. The MSR measures only your home loan, in relation to your monthly income.
For example, if your household income is S$6000 per month, your HDB loan cannot exceed S$1800 per month. If it does, you need to either stretch the loan tenure or make a bigger down payment.
IT’S NOT JUST THE TDSR, THERE’S THE MSR TOO
The only exception to taking an HDB loan if you own just one commercial property is if you are the one operating the business on the premises. So you can take an HDB loan if you own the office you work in, for example, but not if you own multiple offices that you rent out.
Be sure to keep this in mind, if you’re still living with your parents and decide to venture into commercial properties.
This article first appeared on 99.co.