Financing Your Purchase? HDB or Bank Loan?

A LITTLE PROPERTY EDUCATION – FINANCING YOUR PURCHASE (HDB OR BANK LOAN)


In today’s edition of A Little Property Education, we will be covering about financing your home purchase, using HDB loan/Bank Loan. This is a continuation of last week’s edition of HDB Housing Grants.

By the end of this post, you will have a better understanding on the Eligibility, Which Loan to Apply, Differences in the Loan Tenure and Interests, When to Apply, How to Apply, What to Note. 

If you feel that the post is too long, too much information and too confusing for you, contact me and I will be more than willing to fix an appointment and explain in details clearly to you!

Please feel free to comment on the topic to be discussed on the next edition so you are able to find out more information!


For simplicity sake, today’s discussion will be assuming a purchase of a HDB flat.
For Private Properties, HDB LOAN will not be available, and there is a slight difference for BANK LOAN eligibility.
(Call me for more information)

We will first start with BANK LOAN as it is more straightforward and shorter.

How-to-apply-for-a-bank-loan

Bank Loans are usually taken by individuals who:
1. Prefer the loan package as bank loans usually have lower interest rates compared to HDB Loans
2. Its their 3rd housing Loan, and therefore are not eligible for anymore Housing Loan.
3. In general, buyers who need financing but are not eligible for HDB LOAN. (eligibility will be covered in the next chapter)


What are the steps involved in getting a Bank Loan?

1. Contact a banker/bankers
2. Submit relevant documents (banker will advise you accordingly)
3. Get the IPA aka In Principal Approval
4. Sign the LO (Letter of Offer) from the respective bank upon comparison

If you need a list of bankers for you to do mortgage loan, be it for HDB or Private Property, you can contact me as I have a list of Bankers that can help you a better package. 


What to note?

All banks that issue the loan must be registered with the Monetary Authority of Singapore.
A list of all the banks registered with the MAS can be found here.

You are required to pay 5% of your purchase price in Cash.

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Next, the HDB LOAN.

 

Eligibility
HDB provides housing loans at concessionary interest rate to flat buyers, subject to HDB’s credit assessment and prevailing mortgage loan criteria.

Since 1 January 2003, flat buyers who are not eligible for an HDB loan and require financing to buy a flat will have to take a mortgage loan from a bank/ financial institution that is licensed by the Monetary Authority of Singapore.

Flat buyers can apply for an HDB loan if you and your essential occupiers (if any) meet all of the following conditions:

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When To Apply?

What is an HLE letter?

The HLE letter is a financial planning tool.

Knowing the housing loan you can get will allow you to calculate the available amount you have to buy or take over the ownership of a flat.

 

If you are eligible for a housing loan from HDB, the HLE letter will inform you on:

  • Maximum loan amount that you can get;
  • Maximum monthly instalments to pay;
  • Maximum repayment period;
  • Amount of cash proceeds to be used to pay for the next flat (if applying for second HDB housing loan); and
  • Other terms and conditions.
    Tip:
    The maximum housing loan amount is determined based on your financial situation, up to the loan-to-value limit of the flat you intend to buy.
    Apply for HLE letter now.
How to use the HLE letter to plan my flat budget?


Your flat budget will consist of the housing loan that you can get, the amount of CPF savings that can be used and cash savings

Make use of the  Sales Financial Plan,  Resale Financial Plan,  SERS Financial Plan, and DBSS Financial Plan to estimate your own financial plan and the other costs involved in buying a flat.


When do I need a valid HLE letter?

You are encouraged to have a valid HLE letter and complete your own financial planning before searching for a flat.

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Note:

The approved HLE letter will be valid for 6 months from the date of issue. Thereafter, if another HLE letter is needed, please submit a new HLE application online and provide the latest information for re-assessment of loan eligibility.

For those buying uncompleted flats, your family’s financial position will be reviewed nearer the completion of the flat for loan disbursement. The actual loan amount that can be granted will depend on the age, income and financial situation then.

The loan offer will be reviewed if:

  • any given information is untrue or incorrect;
  • there are any changes in your household income, family nucleus or other circumstances which may affect your eligibility for a loan; or
  • you and/or the occupiers who form the family nucleus do not comply with any of the terms and conditions

How To Apply?

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WHAT TO NOTE: INCLUDES INTEREST RATES, LOAN TENURE etc.
HDB Loan Eligibility (HLE) Letter

If you wish to get an HDB loan, you will need to first obtain an HDB Loan Eligibility (HLE) letter.

Credit Assessment

The amount of housing loan that can be granted will depend on the buyers’ age and monthly income.  If you are buying an uncompleted flat from HDB, there is a loan review for HDB loan applicants nearer flat completion. You will be notified when it is time for the review.

Maximum Loan Quantum

The maximum loan amount that may be granted depends on:-
(a) maximum repayment period;
The maximum loan repayment period is 65 years minus the buyer’s age or 25 years, whichever is shorter.

(b) applicable interest rate;
Computation of the maximum loan will be based on the prevailing interest rate which may be revised from time to time. The interest on the HDB loan will be computed on a monthly rest basis or such other basis as the HDB may decide.

(c) monthly instalments; and
This is capped at 30% of the gross monthly income.

(d) loan ceiling.
The loan that can be granted for the purchase of an HDB flat is subject to:

Sales Type Loan Ceiling*
Direct purchase flats 90% of the purchase price
Resale flats 90% of the resale price or 90% of the market value, whichever is lower

*If you have selected your flat before 19 Jul 2005, your loan ceiling is capped at 80%.

Gross Monthly Income

Credit assessment will be conducted based on the buyers’ age and income to compute the amount of housing loan you can obtain. Please click on the Income Guidelines for Credit Assessment to check the types of income which will be considered in HDB’s credit assessment.

Right-sizing the quantum for the second concessionary HDB loan

To further encourage financial prudence, HDB will reduce the quantum of the second concessionary loan by the full CPF proceeds and part of the cash proceeds from the disposal of the existing or immediate past HDB flats.HDB reserves the right to determine the amount of proceeds to be deducted, depending on the existing / immediate past flat’s manner of holding or the provisions of any court order relating to the disposal of the flat (where applicable). HDB will determine the proceeds to be deducted, taking into account the provisions of the court order, without reference to the manner of holding of the existing / immediate past flats. Flat buyers can keep the greater of $25,000 or half of the cash proceeds (including the cash deposit received), HDB will take into account the remaining part of cash proceeds when determining the quantum of the second loan to be granted.

Manner of disposal of existing or immediate past HDB flat includes by way of sale, transfer, surrender or compulsory acquisition.

The cut-off dates for different types of flat transactions whereby the amount of the second HDB concessionary interest rate loan will be reduced by the CPF and cash proceeds from the disposal of existing flat / immediate past flat sold are summarised in Table 1:

Table 1: Cut-Off dates for utilisation of sales proceeds before granting second HDB concessionary interest rate loan

Transaction Types
Cut-Off Date
Purchase of New Flats or DBSS Flats
Date of booking of flat and HLE Application received by HDB on or after 5 Mar 2010
Purchase of Resale HDB Flats
Date of HLE Application on or after 5 Mar 2010
Purchase of Replacement Flats Under SERS
Date of HLE Application by SERS flat owners for new SERS sites announced on or after 5 Mar 2010

For buyers and essential occupiers who have taken one HDB concessionary interest rate loan and buy the next HDB flat after disposing the existing one

For those who buy the next flat after disposing the existing one, they will have to use part of cash proceeds from the disposal of the immediate past HDB flat and all of the CPF balance to finance the purchase of the next flat.

For buyers and essential occupiers who have taken one HDB concessionary interest rate loan and buy the next HDB flat before disposing the existing one

Those who buy their next flat before disposing the existing one, HDB will first grant them a loan at commercial interest rates (which are pegged to the 3-month average non-promotional interest rate for HDB flats offered by the 3 local banks) after they draw down their CPF balance. After the disposal of their existing flat, they will have to redeem this loan with the full CPF refund from disposal of the existing flat and part of the cash proceeds. Upon redemption, the loan will be converted to a concessionary rate loan.

Use of All CPF Savings

Subject to limits for properties with less than 60 years of remaining lease, buyers must use all the available savings in their CPF Ordinary Accounts for the purchase of or taking over the flat before any housing loan is granted by HDB. You may set aside the amount required for payment of stamp, registration and conveyancing fees and CPF Home Protection Insurance Premium (if applicable).

You can use all the CPF savings in your Ordinary Account to pay up to 100 % Valuation Limit (VL) of the flat. The VL refers to the purchase price or the value of the flat at the time of purchase, whichever is lower. If your HDB loan is still outstanding when the total CPF withdrawals towards payment of the flat reach the VL, you may use additional CPF savings from your Ordinary Account if you have set aside the prevailing Minimum Sum cash component.

For more details, you can visit  CPF Board’s website.

Restriction on use of CPF funds and HDB loan for HDB flats with less than 60 years of remaining lease

From 1 Jul 2013, the rules on the use of CPF funds and HDB loan for purchase of public housing with less than 60 years of remaining lease are as follows:Screen Shot 2015-04-13 at 8.13.00 pm

Restriction on application for another HDB loan

Upon obtaining a housing loan from HDB, buyers will not be allowed, within 30 months from the date of loan disbursement of the flat, to obtain another housing loan from HDB.

Interest Rate

The HDB concessionary interest rate is pegged at 0.1% point above CPF Ordinary Account Interest Rate. It is revised quarterly in January, April, July and October each year, in line with the revision of CPF interest rate.


Repayment of HDB Loan

You can use your CPF savings and /or cash to service the monthly instalments of the housing loan. The monthly instalment is payable on the first day of each month. If the instalment is not paid within the month, a late payment charge will be imposed based on the outstanding instalment as at end of the month. Any payment received by HDB will first be used to settle the outstanding late payment charges. Any balance will then be applied towards the payment of the other outstanding charges. 

Buyers paying the monthly loan instalments partially or fully by cash, must pay them through GIRO.

 

Progress Payment [Applicable for flats sold under the Design, Build and Sell Scheme (DBSS)]

Where the developer offers progress payment to buyers, the HDB loan will be disbursed progressively to meet the progress payments during the construction period. Buyers will commence payment of their monthly instalments once the HDB loan is disbursed under the Gradual Repayment Plan i.e. the instalments will be calculated based on the amount of loan disbursed over the outstanding loan duration. The instalment amount will comprise both interest and principal.

Existing flat owners with a mortgage loan will have to continue to service their existing loan while making payments for the new loan for a DBSS flat once the loan has been disbursed.

If existing flat is disposed after the buyer has taken possession of the DBSS flat, where HDB housing loan has been fully disbursed, the loan quantum will be reduced taking into account the CPF refund and cash proceeds realised from the flat.

In a situation where existing flat is disposed in the midst of the construction of DBSS flat (where monthly instalment is still being paid according to the Payment Schedule), the buyer has to use the sales proceeds to redeem whatever loan that has been disbursed towards the progress payment and use the balance proceeds towards payment of subsequent progress payments. Developer can take action on the buyer for non-payment. HDB would only start to disburse the net loan after the buyers’ CPF refund and cash proceeds have been exhausted, in accordance to the payment schedule.

After booking the DBSS flat, while waiting for the DBSS flat to be completed, in addition to the HDB loan obtained for the DBSS flat, the DBSS flat buyer may wish to get a 2nd HDB concessionary loan to buy another resale flat for transitional housing. Upon disposal of the resale flat, CPF refund and up to 50% of the cash proceeds from the disposal of the resale flat must be used to reduce the DBSS loan.

 

Partial Capital Repayment and Redemption of Loan

The buyers/transferees can from time to time submit an application to HDB to make partial capital repayment of the Principal Sum (over and above the monthly instalments to be paid) provided such payment is made within one (1) month from the date of receipt of the said application. Notwithstanding the foregoing HDB reserves the right not to accept any such payment or to accept such payments only if it is of a sum of not less than a minimum sum as may be determined from time to time by the HDB in its discretion.

Buyers can also fully redeem the loan by giving one month’s prior written notice to HDB . For redemption after complete disbursement of loan, the buyer should pay the whole of the Principal sum then outstanding and all other monies due including interest up to the date of payment.

Insurance on Housing Loan

There are two types of insurance you have to take out:

HDB Fire Insurance Policy

If you are taking a loan from HDB, you will have to take out a fire insurance policy from the Insurance Agent appointed by HDB.

Home Protection Scheme (HPS)

HPS is a mortgage-reducing insurance scheme administered by CPF Board. It insures CPF members and their families against losing their homes should members become permanently incapacitated or pass away. HPS insures members up to 65 years of age or until their housing loan is paid up, whichever is earlier.

If you are using your CPF savings to pay your monthly housing loan instalments, you have to apply for HPS.

For more information on HPS, you can obtain an HPS booklet at HDB Hub or call CPF Board or visit the CPF Board’s website.

References: Information are taken from HDB Website, under “HDB Housing Loan


Alright! Basically that’s it!

Thank you for “lasting” all the way here!
Hope you have learnt something today!
Please comment below on what is the next topic you would like me to cover!
If you have learnt something, help me by sharing this post!

Have a great week ahead! 🙂

Ken Seah
92774372
kenseah@hsr.com.sg


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