Home Mortgage Loan Basics: How Much Can I Borrow?
A common question among homebuyers is: "how much can I borrow for a home loan?" The answer to this question depends on two key factors. First, the maximum size of your mortgage is dependent on how much you can afford given your own financial circumstances. Second, your home loan opportunities are determined by what banks are willing to lend you based on a number of indicators, including your finances and government regulations. In this article, we examine these two factors in depth, to help you better understand the home loan process.
How Much Loan Can You Afford?
Homeownership is a dream for many individuals, and a rite for passage for us Singaporeans. It is also a significant investment that requires proper planning. Before you can decide how much to borrow, you must understand how much you can afford to pay for a new home in terms of upfront and on-going costs. By setting realistic expectations, you can find a great home that you can afford and set yourself up for financial peace of mind in the future.
Upfront Cost: Down Payment
The first thing to consider when deciding how much "home" you can afford, is to estimate how much you have saved for your home's down payment. This includes your cash savings, your CPF Ordinary Account savings and any net proceeds (net of outstanding mortgage) from the sale of your current house (if applicable). These savings help dictate how much you can actually borrow.
| Number of Outstanding Home Loans | Minimum Cash Down Payment |
|---|---|
| None | 5% |
| None | 10%* |
| 1 | 25% |
| 2 or more | 25% |
| * If loan tenure exceeds 25 (HDB) / 30 (private) years, or the loan concludes after the borrower turns 65 years old. | |
On-Going Costs: Monthly Mortgage Payments, Maintenance & Insurance
In addition to choosing a home loan with a principal you can afford, you should apply for a housing loan with manageable monthly payments. To estimate various monthly payments based on your loan amount and the cheapest interest rates currently available, use our free home loan calculator tool.
When comparing loans it is important to keep in mind that choosing a longer loan tenure helps to reduce the required repayment each month. However, it also raises the total amount you will pay in interest costs over the course of the loan. Additionally, it is important to be aware that interest rates can change and that you should not only compare introductory interest rates, but also the rates in the following years. Fortunately, homeowners have the option to refinance their loan in the future, which often allows them to secure a better rate from another bank.
In addition to mortgage payments, homeowners should budget for homeowners insurance, fire insurance, property tax, conservancy fees and management service fees. Without doing so, they may be unprepared for the total cost of homeownership and have to spend hard earned savings or take on additional debt.
How Much Can I Borrow for a Mortgage Loan?
After you have a sense of how much you can afford to pay for your home, you can begin to decide how much you can and should borrow. With that said, it is important to understand the lending guidelines of banks and the Housing & Development Board (HDB). These lenders consider a number of factors when deciding how much to lend. First, lenders 3 key ratios: MSR, TDSR and LTV. They also consider a range of other factors described below.
The Mortgage Servicing Ratio (MSR) measures the amount of your gross monthly income that is used to pay (or "service") your home loan. You can calculate MSR by dividing your monthly mortgage payment by your gross monthly income. The maximum allowable MSR for banks and HDB home loans is 30%. This means that if you earn S$5,000 each month, your maximum home loan payment would be S$1,500 (i.e. S$5,000 x 30% = S$1,500).
It is important to note that MSR also includes all of your property loan obligations. For example, if you are currently paying S$1,000 for a home loan, this figure will be included in your MSR calculation (e.g. S$5,000 x 30% = S$1,500; S$1,500 - S$1,000 = S$500 remaining for new loan)
Additionally, if you are married, your spouse's income will be accounted for in the MSR calculation. To use the original example, if you each earn S$5,000, your maximum loan payment would be S$3,000 (i.e. (S$5,000 + S$5,000) x 30% = S$3,000).
The Total Debt Servicing Ratio (TDSR) takes into account all of your monthly debt repayments (e.g. car loan, home loan, credit card debt), unlike the MSR which only focuses on mortgage payments. The current TDSR limit is set at 55% of the borrower's monthly income. This means that borrowers cannot borrow a home loan that will result in their total monthly loan payments exceeding 55% of their monthly income. For more information, please refer to our full TDSR guide.
- Loan Amount ÷ Asset Price = Loan-to-Value (LTV) Ratio
- Loan Amount: S$200,000
- Home Purchase Price: S$500,000
- LTV: 40%
In Singapore, the LTV limit depends on your home type and the number of outstanding mortgages you have. The maximum LTV for bank loans is 75%, while the maximum is 90% for HDB concessionary loans. For more about the difference between bank loans and HDB loans, please refer to our full guide. However, banks are not required to offer loans of the maximum LTV amount. In reality, they will make decisions based on your complete borrowing profile.
Bank Loan LTV Limits
| 1st Housing Loan | 2nd Housing Loan | 3rd Housing Loan | |
|---|---|---|---|
| LTV Limit: Individual Borrowers* | 75% | 45% | 35% |
| LTV Limit for tenure of 30 years (25 for HDB) or if borrower's age is greater than 65 at the end of loan | 55% | 25% | 15% |
| LTV Limit: Non-Individual Borrowers | 15% | ||
Additional Home Loan Borrowing Factors
In addition to these important ratios, banks will decide how much to lend you based on additional factors. For example, banks will consider how many outstanding home loans you have, as well as how much you owe for these loans. This helps them measure your relative risk of default due to other debt obligations. Additionally, they will consider the remaining number of years on your desired property's lease, the location of the property. These help the bank understand the value of the property. Finally, banks will consider your age and the loan's tenure, as well as your credit score.
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Stephen Lee is a Senior Research Analyst at ValueChampion, specializing in insurance. He holds a Bachelor of Arts degree in International Studies from the University of Washington, and his prior work experience include risk management and underwriting for professional liability and specialty insurance at Victor Insurance. Additionally, Stephen is a former US Peace Corps Volunteer in Myanmar (serving between 2018-2020), where he continues to provide business development consulting services to HR companies in Asia Pacific.