Tuesday, May 5, 2015

How Much Loan Can You Get For Your HDB flat?

While I was looking through my Facebook news feed last week, I came across a feed by someone who said he bought a $400K+ 5 room HDB flat only to find that he was only eligible for a loan of $200K+. The thought of coming up with $200K+ of cash is scary for any young couples who will be getting the keys to their HDB flat soon. So why was the loan eligibility so low? The answer: "both husband and wife are self employed."

Being a self employed, it can be harder to prove the income that you receive thus affecting your loan eligibility. We'll discuss more on the situation and what we can do to overcome it.


Process of applying for loan from HDB

Before we dive deeper into the situation of the self employed couple who didn't manage to secure a full loan, let's look at the process in applying for a loan from HDB.

Here's how the loan process works:

  • Before you apply for a BTO flat, you'll be required to submit a HDB Loan Eligibility (HLE) Letter. From February 2015, buyers must produce the HDB Loan Eligibility letter when they book their flat and not at the signing of agreement which is 4 months later. 
  • Once your application for HLE has been approved, you can proceed to apply for your flat.
  • Your HLE letter is only valid for 6 months
  • Most BTO flats take 2-3 years before they are completed so your 1st HLE will no longer be valid. 
  • You'll be required to apply for a 2nd HLE. This is the important stage. If your HLE application does not cover 90% of HDB purchase price at this stage, you are required to top up by CPF/cash 
  • If you are unable to top up, you will have to either take a bank loan or forfeit your flat and lose the 5% down payment you paid plus other initial cost


Applying for HDB loan as a self employed

If you're a self employed, applying for a HDB loan can be more complicated as compared to an employed person. Self employed can mean you own your own business or you're working as a freelance such as teaching private tuition etc.

As a self-employed applicant, you'd need to prepare the following documents to prove your income for the loan application:

 a) Valid Accounting & Corporate Regulatory Authority (ACRA) Computer Information (Business Profile) or Valid license of business / trade; and

 b) Latest Notice of Assessment from IRAS or Certified Annual Statement of Accounts from an audit firm; and

 c) Credit bureau report#; and

 d) Latest 12 months’ bank statements/passbook.

Where is the problem?

The problem will come when you cannot prove your income to HDB accurately. By accurately, it means do you have prove of your income and that you have the means to afford that flat you're buying? 

For example, you may be teaching tuition on a full time basis and most parents or your students will pay you cash. If you do not deposit the money into your bank account, there is no way to prove that you actually did make that income you declared to HDB. Let's see how we can solve this problem.


How to get the loan you required for your HDB flat?

1. Credit your income into your bank account

For an employed person with CPF contributions, it is much easier to get the loan you required as you just need to provide latest 3 months payslip and latest 15 months CPF contribution history. All these information can be retrieved easily. 

For all others without a fixed monthly income, the general guideline is you need to provide latest 12 months bank statements/passbook. Therefore, always remember to credit the income you receive from any sources especially 12 months before you apply for the HLE. 

2. Declare your income accurately to IRAS

Another information that you need to provide to HDB for the HLE is your latest notice of assessment from IRAS or certified annual statements of accounts from an audit firm. If you're a business owner and have proper accounts and income tax declared accurately, it won't be much of a problem securing your loan.

However, if you're doing other freelance services on an individual basis, make sure you declare your income accurately to IRAS for tax purposes. You can't be saying you earn $3000 when your income declared is only $1000.

3. Take note of your other loans  

If you have other loans such as student loans, car loans or credit card debt, it'll affect the loan eligibility you'll get as well. One thing to take note of is the Total Debt Servicing Ratio (TDSR). It is at 60% currently. This means you can only take a maximum of 60% of your gross monthly income to pay for all loans. This include all your other loans such as car loans, credit card debts, students loans and personal loans etc. 

4. Know how much loan you are eligible for

It is easy to plan ahead and know how much loan you're eligible for so you do not get a shock later. On the HDB website, they have a enquiry on maximum loan calculator where we can key in some of our details and know the estimated loan we're eligible for. 

I did a scenario test and input the employment status as employed with CPF contributions with $3000 monthly salary each for a couple. Here are the results of the maximum loan eligibility from HDB website:


Click image to enlarge

The verdict? With a combined income of $6000, the maximum loan eligibility works out to be S$ 396,700. You can try out the calculator for yourself here.  

If you're self employed with a combined income of $6000, the maximum loan eligibility should be the same as long as you can prove your income accurately for the latest 12 months instead of just 3 months for an employed person. 

A maximum of 30% of your gross monthly income can go into home loan repayments currently. If you earn $3000, only $900 can be used to pay for your housing loan. This is known as the Mortgage Servicing Ratio(MSR). That is how the loan eligibility is calculated. 

How Much Loan Can You Get For Your HDB flat? I hope this post has given you a clearer understanding of the loan process and the eligibility criteria. Now you can embark on your house hunting with a peace of mind. 

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31 comments:

  1. If 1st HLE, I'm eligible for $250K.

    And when comes to 2nd HLE, due to pay increment over the years, would the loan amount be increased to more than $250k or it would just stay at $250k?

    ReplyDelete
    Replies
    1. Hi,

      Your loan amount will most probably be revised accordingly to your income declared for your 2nd HLE. If your income is higher the loan eligibility will be higher as well.

      Delete
    2. as far i know, HDB loan is not subject to TDSR

      Verbatin

      Delete
    3. Hi Verbatin,

      HDB loan is subjected to MSR which is 30% of our gross monthly income.

      Delete
  2. Hi there,

    I've a question regarding the strictness of the first round of HLE assessment. This is because me and my partner will be interested in applying for a bto that is higher than the max loan eligibilty. Let's say we have a combined income similar to your example, with around 20k cash savings and 25k cpf savings. But we are also servicing our student loans (CPF).

    Is it possible for us to secure a 4rm flat that is about 450k to 500k? I hope HDB take it as a guideline for the first assessment and not a strict rule.

    Also I'm just wondering how couples whom 1 is working but the other is still studying will be able to get past the first assessment. For the same value of flat and the income for the working person is only 3-4k?

    ReplyDelete
    Replies
    1. Hi,

      The outcome of the HLE assessment is determined by HDB. You should get your letter first and check on your loan eligibility before proceeding. For those who're still studying, I suppose there is a special scheme for them where their education level and future potential pay is taken into consideration.

      Delete
  3. Hi,
    How should i go about when i and my hb applied the flat, both of us is a employee with CPF contribution and now my HB is employee without CPF contribution and now our flat is coming in less than 6 mths and i have not help him to contribute to CPF.
    I am afraid that we are unable to get the loan from hDB and end up forfeited.

    Is there any way to increase the HDB loan even now less than 6 months?

    ReplyDelete
    Replies
    1. Hi memories,

      You can try to get the second hle now and see if you can get the loan from HDB. Another alternative is to get a home loan from the bank. You can email me at sgyi@homeloanwhiz.com.sg and I'll be able to assist you in getting a bank loan for your HDB. I have links with all major banks in Singapore.

      Delete
    2. Hi memories,

      You can try to get the second hle now and see if you can get the loan from HDB. Another alternative is to get a home loan from the bank. You can email me at sgyi@homeloanwhiz.com.sg and I'll be able to assist you in getting a bank loan for your HDB. I have links with all major banks in Singapore.

      Delete
  4. Hi any idea if I don't declare my credit debts in applying of HLE.. Will they hold n review my HLE? Cos I dun wan my Hubby to be find out abt my debts.

    ReplyDelete
    Replies
    1. Hi,

      Credit card debts are included in the review of your loan eligibility. Even if you don't declare they will still be able to find out when they do a credit check with CBS. It is better to declare else in the end they will still come back and tell you about it.

      Delete
  5. Hi,

    Is installment plan on credit cArd consider a debt?

    ReplyDelete
    Replies
    1. Hi,

      Yes it is considered as debt.

      Delete
  6. Hi,

    HDB loan is not subject to TDSR?? Thanks

    ReplyDelete
    Replies
    1. Hi,

      HDB loan is subjected to both MSR and TDSR.

      Delete
  7. hi what if I cant get enough loan n have to top up 20k will hdb give me time? or I have to give up my bto flat

    ReplyDelete
    Replies
    1. Hi,

      You can appeal to HDB. They will evaluate on a case by case basis.

      Delete
  8. Hi,

    Situation:
    My hb got a flat (350+k) and we're going to book a bto flat (600+k); I've just started working thus HLE outcome won't be high.

    For the 1st HLE application, can we tell them that he will sell his current hdb in the future so they allow us to book our desire flat?

    ReplyDelete
    Replies
    1. Hi,

      You can try to explain to HDB but I do not know if it will be approved. They will review on a case by case basis.

      Delete
  9. Hi. Will HDB knows my loan in oversea Malaysia ?

    ReplyDelete
    Replies
    1. Hi Agatha,

      By right they will not know if you do not declare.

      Delete
  10. hello! : ) thanks for the info! currently our HLE is not enough to cover the flat we wanna apply for because one of us is still in school. However when the flat is ready, but then both of us will definitely be employed. So for the second round HLE would we be more likely to get a higher loan amount? Because for now our loan amount doesn't cover 50% of the flat price.

    ReplyDelete
    Replies
    1. Hi Joyorable,

      Yes when both of you have income, the loan amount will definitely be higher. The gauge is the loan instalment cannot be higher than 30% of both your combined income. If combined income is $5000, then maximum loan instalment should be $1500.

      Delete
  11. Hello!
    If our first HLE (about 220K) at the time of the flat application does not cover the cost of the flat (400K). will HDB still allow us to proceed with the booking or will we be rejected because the first HLE does not cover the amount?

    My gf is currently working for slightly under a year, but I have just graduated and actively looking for a job.

    ReplyDelete
    Replies
    1. Hi Nicholas,

      Yes you still can proceed with booking. The HLE is a gauge on your loan eligibility and is only needed when you apply for the loan. If you can't qualify for enough loan at that point in time, then you have to either top up more downpayment or forfeit the flat.

      Delete
    2. Hello!

      Just to follow up a little. Would that mean that the second HLE (upon collection of keys) is the key determinant, since the loan is technically granted then?

      Delete
    3. Hi Nicholas,

      Yes that's right

      Delete
  12. Hi,

    My boyfriend and I are currently full-time undergraduates.

    Our flat selection is in Sep 2017 (1 month's time). We are unable to get a HLE letter. What can we do?

    Thanks.


    m

    ReplyDelete
    Replies
    1. Hi,

      No worries on that. You only need to provide your HLE letter when you collect your keys. This would be in 3-4 years time when both of you should have already started working. You will be able to get your HLE letter then.

      Delete
  13. hello, im a police officer and my im earning 2500 + 500 allowance . gross is 3k. my allowance is fixed every month . my girlfriend is earning 2020. when i put in the calculator, to declare as allowance and to put as gross 3k monthly is a huge difference. if i declare 2500 and 500 allowance, im only able to loan 298k. but if 3k gross, i would be able to loan 330k . pls help me out. we both 23.

    ReplyDelete
    Replies
    1. Hi,

      You'll have to declare your income accordingly as you'll be required to submit your payslip which will show your basic income and allowance. You can appeal for higher amounts if you have additional savings in the bank or any other assets such as investments etc.

      Delete