People in Singapore are often concerned about the initial cash outlay when buying a home. While planning to buy the dream house with a home loan, even a small percentage of the property value can be a huge sum. Most home loan buyers want to minimize their down payment amount. This article share with you insights on how to calculate the maximum amount you can borrow as a house loan.

Also read What are the criteria for a personal loan in Singapore?

What is LTV Ratio and how to calculate it?

The Loan To Value (LTV) ratio indicates how much amount you can borrow to buy a home. For example, an LTV ratio of 80% signifies that you can obtain a home loan for a maximum of 80% of the property price or value, the lower of the two. When a property is priced higher than its value, the difference between the two is called Cash Over Value (COV).

At present (March 2023), the maximum loan to value under HDB Concessionary Loans is 80% which was earlier 85%. The remaining 20% of the property’s value or price, as the case may be, can be paid via cash, CPF ordinary account, or a mix of both.

Whereas, if you want to obtain a house loan from banks or financial institutions, the maximum LTV ratio is 75% only. For the rest, you can pay via cash or your CPF ordinary account, or a combination of both. However, you are required to pay at least 5% of the property’s value or price (as the case may be) in cash.

It should be noted that an LTV ratio does not vary based on the type of property but the medium you are approaching for the home loan i.e. HDB and banks. If you are planning to purchase an HDB flat by obtaining a home loan from a bank then the LTV applicable to you would be 75%, not 80%. And you will have to pay 5% in cash at least and 20% with cash/CPF ordinary account/ cash and CPF.

How does this calculation work?

Suppose you are purchasing an HDB 3-room resale flat valued at $600,000 while the actual price of the flat quoted by the seller is $650,000. The difference of $50,000 between these values is called cash over value (COV).

The maximum amount using an HDB concessionary loan you can borrow is 80% of the lower of the two amounts i.e. $600,000 X 80% = $480,000. The rest 20% which is $120,000 can be paid through cash or CPF ordinary account and both. However, the COV of $50,000 can only be paid via cash as it is not covered by the loan at all.

In the case where you obtain a home loan from the bank, the maximum amount that can be borrowed is $600,000 X 75% = $450,000. The 20% of the property value i.e. $120,000 can be paid using cash/CPF OA/both. However, the 5% + the COV can only be paid in cash which comes to $30,000 +$50,000 = $80,000.

You must note that MAS (Monetary Authority of Singapore) does not allow the applicant to obtain any bank loan to finance the down payment.

Points to note

• The medium-term interest floor rate which is used to calculate LTV for banks, has been raised by 0.5% by banks and financial institutions.
• 3% interest floor rate has been introduced by HDB for new HDB home loan applicants.
• The concessionary interest rate remains unchanged at 2.6% per annum which is pegged at 0.1% above the ordinary account interest rate for April-June 2023.

What are the factors affecting the LTV ratio?

As discussed above, the maximum LTV ratio the HDB grants are 80% while banks offer only 75%. However, the HDB as well as the banks can lower this ratio at their discretion. It is not a guarantee that you will avail the maximum ratio, they can choose to lower it if they find it appropriate to do it.

Factors that affect your LTV ratio are:

• How many outstanding home loans do you already have
• State and location of the property
• What is the remaining lease term of the property
• Applicant’s age and loan tenure
• The credit score/ratings of the loan applicant

1. Outstanding home loans

If you have already obtained any home loan in past, LTV for the second home you can borrow will be pegged to 45% only. The remaining 55% is the down payment which must be paid half in cash, and half using cash or CPF account or both.

For the third time purchase of a home loan, the maximum LTV that is fixed is 35%. Similarly, you will have to pay half of the down payment in cash and half can be paid via cash, or CPF, or a mix of both.

These above LTV ratios are applicable on loans with a term of 30 years or below. If you are 65 or more in age, the term of 30 (25 years for HDB), the LTV can fall even lower than mentioned ratios.

2. State and location of the property

Based on the state in which the property is located, the LTV can even decrease significantly more than the mentioned rates. Properties that are located overseas or in undesirable locations may attract lower LTV than the general one.

Also, the properties that have a major defect such as condominiums in a property where residents are suing developers for defects may also cause an LTV to lower down.

3. Remaining Lease term of the property

For properties that have a remaining lease term is only 36 to 40 years, the maximum LTV ratio applicable is often 60%. However, you are left with the choice to pay 15% of the property price or value, whichever is lower via your CPF ordinary account.

Whereas, properties having 35 years or less on a lease cannot be bought with home loans usually. Additionally, you cannot utilize your CPF ordinary account balance to finance the property that has 30 years or less on the lease.

However, if you have heard about such kind of properties getting funded through monthly installments, then this is a case of a private contract entered between the seller and the buyer via a law firm. Alternatively, it could also be a case where the buyer has a high net worth and has access to private banking facilities.

4. Loan applicant’s age and loan term

LTV for private properties is pegged at 55% for applicants who are 65 or more years of age and where the loan term is 30 years or more. Whereas, the maximum LTV for an HDB flat is capped at 55% if the loan term is more than 25 years.

This means if you want the higher LTV of 75%, you must repay the full loan amount before you turn 65 if you took a private home loan at 35. Where you have an outstanding home loan, the LTV can fall lower.

5. Applicant’s credit score/ratings

Almost all the bankers and HDB as well check your credit score during the home loan application procedure. If you have a history of delayed or non-payments of loan installments or interest charges, the financier could identify you as a credit risk. In such a case, banks and the HDB may offer a lower LTV than the maximum. For example, LTV of 60% instead of 75% in the case of banks.

To avoid this scenario, you must repay all your loan installments along with interest on time irrespective of the type of loan. Be it a personal loan, home loan, credit card loan, or car loan, you are required to repay the loan on time to maintain a high credit score. An unpaid or irregular loan from 10 years ago can cause you difficulty in getting the desired LTV on your home loan. Hence, make sure you have a clean credit history.

Now you know what factors affect your LTV ratio, you can plan better to buy a home in the future.

Compare the home loans in 2024 across major banks in Singapore.