HDB Finance Options

Wedding bells are ringing and you are excited to embark on the next chapter of your life, but just like a marriage, you will need to review your income and other financial obligations before committing to a home loan.

As the housing market is showing a more upward movement, the temptation to borrow more than you can afford becomes enticing. Your mortgage payment should be comfortable even if it is a stretch, not a weight that drags you down each month.

It is a smart move to get pre-approved for a loan early in your HDB flat search. If you intend to get an HDB housing loan, you must first apply for an HLE letter.

The HLE letter is valid for 6 months. It gives information on:

  • Eligibility for an HDB housing loan
  • Maximum loan amount
  • Maximum loan repayment period
  • Monthly loan instalments
  • Amount of cash proceeds to be used to pay for the next flat (if applying for second HDB housing loan)

When taking an HDB housing loan, you can later refinance the resale flat with a bank loan. If you are applying for a second HDB housing loan, the full amount of CPF proceeds and part of the cash proceeds from the disposal of your current/ previous flat will be used to reduce the HDB housing loan amount.

You can also consider a bank loan if you choose not to use, or are ineligible for, a housing loan from HDB. You would also be able to apply for a Pre-approval with the various banks. The Approval in Principal (AIP) will be valid for 3 months. When taking a bank loan, you cannot refinance the resale flat with an HDB housing loan.

Home owners can expect to pay a higher monthly instalment on their housing loans in anticipation of a rate hike by the United States Federal Reserve. As Singapore interest rates are closely correlated with those in the US, this will tend to push up rates on credit cards, mortgages, vehicle loans and bank savings accounts. That is why it is important to really look at how much you can spend every month.

The lenders will look at your income, debt and savings, and Total Debt Servicing Ratio (TDSR) limits your borrowing capacity to 60% of your income. So while that determines how much you can borrow, it is not necessarily what you can afford.

Pre-approval requires the lender to asses your financial situation. The lender will then give you a letter that states the amount they would be willing to lend you. If you get in a multiple-offer scenario, being pre-approved may give you an edge because the seller will have more confidence that you will be approved for a loan large enough to purchase their home.

You are not obligated to get a loan from the lender who you get a mortgage pre-approval from. When it is time to officially apply for a mortgage, it is best to get loan estimates from at least three lenders to compare their interest rates and fees.

When choosing a housing loan from a bank, please review the different housing loan packages offered by the banks thoroughly and weigh your options carefully. Importantly, please take note of key terms and conditions such as lock-in periods, interest rates, and any other financial considerations.