There are a
lot of myths about what affects your property loan. If you go
by rumour, everything in your life is a factor – from your job to your car to
the pattern of facial hair you sprout on a bad week. We’re going to let you in on
a secret: the process of loan approval is straightforward, and quite
predictable:
The factors determining
loan approval
There are some variations on this list,
depending on the bank you go to. But these are the basic factors that almost
every bank will look at.
Your Total
Debt Servicing Ratio
Your credit score
Your age
Income and source of income
Valuation
Remaining lease
1. Your Total Debt Servicing Ratio
Do
not mistake the TDSR for the Mortgage Servicing Ratio (MSR)
2. Your
credit score
For
former bankrupts or defaulters:
3. Your age
4. Income and source of income
5. Valuation
6. Remaining lease
Source: https://www.99.co/blog/singapore/what-determines-whether-your-property-loan-gets-approved/
Your credit score
Your age
Income and source of income
Valuation
Remaining lease
1. Your Total Debt Servicing Ratio
Also referred to as TDSR, The TDSR is
one of the most significant cooling measures imposed by the government. It is
meant to prevent overleveraging (too much borrowing), and to push home prices
down. When you apply for a home loan, the bank
will compare your debt obligations to your monthly income. Your total debt
repayments each month, after getting the home loan, must not exceed 60 per cent
of your monthly income. For example:
Say you are applying
for a loan of 2 million, with a 30 year loan tenure.
The monthly repayments are around 7,300.
In addition
to this, you have:
§ A car loan,
for which you pay 1,500 per month
§ Various
personal instalment loans, for which you pay 1,200 per month
§ The remnants
of your university education loan, for which you pay 400 per month
With the home loan, you would be obliged
to make total monthly repayments of 10,400.
Your monthly income is 25,000.
Your repayments come to around 41.6 per cent of your total monthly income –
this is your TDSR, and you would qualify for the loan.
If your TDSR would exceed 60 per cent,
the loan will either not be approved, or you will be asked to lower the amount
you’re borrowing.
If you apply for a personal loan to cover the down payment, that loan is factored
into your TDSR. So
try to avoid that.
Do
not mistake the TDSR for the Mortgage Servicing Ratio (MSR)
You may occasionally come across a condition called the MSR. For example,
the bank may require that you have an MSR of 35 per cent. This means that the
monthly repayments from
your home loan only cannot
exceed 35 per cent of your monthly income.
In the above example (earning 25,000 per
month), this would mean home loan
repayments, irrespective of other debts, cannot exceed 8,750 per
month.
You must still adhere to the 60 per cent
TDSR limit, even if you meet the MSR.
2. Your
credit score
Every bank will check your credit score when you apply for a loan. This is a
number between 1,000 and 2,000, for which you will be assigned a grade. You
can obtain your credit score for about $6, from the Credit Bureau of Singapore
(CBS.)
At 1,911 to 2,000
points, you will have a credit rating of AA.
Assuming you meet the other conditions on this list, this often assures you will get the maximum
allowable loan (80 per cent of the property value.)
Foreign buyers should note that
Singapore banks do not negotiate interest rates for high risk borrowers. The
interest rate on your home loan will not be adjusted to make up for your risk
profile: your loan is either rejected, or you are asked to take a smaller loan.
If you have
never taken a loan in your life, your
credit rating will be Cx. This is not as
good as AA, as it means the bank has no idea who they’re dealing with.
For this reason, a lot of borrowers take
small loans or use credit cards (which they pay back religiously) two
to three years before taking a home loan. The idea is
to have the coveted AA
score by the time of your application.
Foreigners often start with a credit
rating of Cx. There is no inter-border data exchange for credit scores; banks
here can’t check your credit score back home via
the Credit Bureau of Singapore (although
some might request you present a
credit report from home.)
For
former bankrupts or defaulters:
Bankruptcy is removed from your credit
report five years after receiving the official letter of discharge. You should
be able to apply for a loan normally at that point.
Records of default are removed after
three years, assuming the debt was settled (e.g. paid through debt
restructuring.) If
the debt was written off with no attempt at repayment, it will remain on record
indefinitely; this can result in rejection or a smaller loan.
3. Your age
The loan tenure has a maximum of 35
years. In
addition, the sum of the Property loan tenure and
your age must not go beyond the retirement age of 65. So if you are 40 years
Old at the
time of application, you have maximum loan tenure of 25 years. Explaining
to the banker that this wouldn’t have happened “in your day” is not helping.
4. Income and source of income
Income matters due to the TDSR (see
point 1.) If you have a regular pay check this is straightforward. But if you
are self-employed, your income may fluctuate.
For these variable income types, a 30 per cent haircut is imposed. So if you earn 10,000 per
month, you will be treated as if you earn 7,000 per
month for the purposes of meeting the TDSR.
Your loan application is rejected
due to lack of proper
documentation. If your income is not revealed in your CPF statements or IRAS
tax forms, you will need to produce some other form of proof, such as client
pay slips.
5. Valuation
When determining the loan amount, the
bank will use the official valuation of the property. Not the seller’s asking price, but the official valuation. If the seller
asks for 2.3 million, and then
valuation says the house
is worth 2.2 million, the bank is
going to base the loan on 2.2 million.
You can go to different banks to get a
different valuation.
Beyond dollars, banks will factor in conditions that may make the
property difficult to sell. For example, almost no bank will give you a loan
for properties in the red light district.
6. Remaining lease
If you are buying a property with limited time on the lease (e.g. less than 40 years), the bank
might reject the loan. Most mortgage bankers will tell you outright if the
remaining lease is too short.
Source: https://www.99.co/blog/singapore/what-determines-whether-your-property-loan-gets-approved/
