What are the loan structures like for HDB Properties?
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Potential owners can take up the loan from either HDB directly, or from FIs who offer housing loan facilities. Each option has its own policies. For purchasers who are taking a loan directly from HDB, the salient points are as follows:
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The purchase price can be fully paid by CPF funds, less the initial option deposit. |
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HDB’s current concessionary interest rate (also known as subsidized rate) is at 2.6%. However, it is subject to HDB varying the rate from time to time. It is good to know that HDB does not vary their interest rates as rapidly as the FIs. |
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The downside however, is that each illegible person can only utilize this benefit 2 times in his or her lifetime, be it for a direct purchase from HDB or from the secondary market.
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For purchasers who do not qualify for the HDB concessionary rate, or who opt for a loan from the FIs, they are subjected to the following:
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- Only up to 90% can be financed, so the difference between the purchase price of the property and the loan will have to come from private funds. This portion however, can be a combination of cash and CPF savings, e.g. first 5% has to be in cash, while the balance from CPF. It is a statutory requirement for all purchasers to furnish the initial 5% in cash.
- FIs who grant loans have both Fixed Interest Rate and Variable Interest Rate packages. These loans are based on commercial interest rates depending on their cost of funds at that particular time. These rates may or may not be as competitive as compared to HDB’s concessionary rates. Commercial rates may fluctuate frequently, therefore it is prudent for borrowers to keep abreast of the market movement and interest rates at all times.
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FIs have their own credit assessment guidelines which may not conform to that of HDB.
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How are loans disbursed for Private Property purchases?
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For Completed Properties, FI’s would follow the normal payment schedule when disbursing funds. By law, all private property purchasers like HDB purchasers must make the initial 5% payment in cash. After having paid the initial 5%, depending on the loan quantum granted (be it 80% or 90%) and as long as there are sufficient funds in their CPF ordinary account, purchasers can make up the difference by drawing on their CPF savings. Prior to completion of the purchase, the conveyancing law firm would call for the final draw down of the balance from the FI and CPF Board which ever applicable.
For Building Under Construction (BUC) properties, FIs today offer financing tagged to the developer’s Progressive Payment Scheme. Progressive Payment Scheme is based on the developer’s predetermined schedule of payment (payments are normally called for in percentages). This schedule is set out based on the different stages of development; as such payments made for the purchase would be spread out through out the course of the development process. Once the developer has completed a certain stage, the developer would call for the required payment. The respective FI would then disburse the loan progressively according to the schedule. The borrower’s monthly repayment would increase gradually based on the loan disburse
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The progressive payment schedule is as follows:
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- Booking Fee (Cash) – 5%
- Sales & Purchase Agreement (CASH / CPF) – 15%
- Foundation – 10%
- Reinforced Concrete – 10%
- Brick Walls – 5%
- Ceiling / Roofing – 5%
- Electric Wiring / Plumbing – 5%
- Carparks / Roads / Drains – 5%
- Temporary Occupation Permit (TOP) – 25%
- Certificate of Statutory Completion (CSC) – 15%
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What are the common interest rate schemes offered for housing loans?
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Most FIs provide a combination of the following schemes: SIBOR, SOR, CPF, Fixed, Variable, Combination, Interest servicing, and also Interest matching (0%) interest rates schemes. For the Progressive payment scheme, there is a time lapse from the purchase to TOP; during this time the market would have moved either way and like wise the interest rate packages offered would change. As such, most FIs provide for a 1 Time Free Conversion prior to TOP. As long as the loan is in force, you would have an option to decide which package would meet your needs best – either to stay with the existing package or to change to the prevailing package at that point of time.
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TO NOTE:
Most FI’s who provide both HDB and Private Property loans may or may not have the same interest rates and packages for both property types. |
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How do Financial Institutions (FIs) determine whether to approve my loan or not?
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The foremost criterion is your repayment ability for the loan. This is generally assessed based on the following factors: |
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Monthly income, |
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Monthly CPF contribution, |
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Existing funds in CPF Ordinary Account, |
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Other financial commitments, |
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Employment Profile, |
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Age of borrower, |
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Nationality, |
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Debt servicing ability, |
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Bankruptcy, |
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Credit record, |
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Financial strength of Joint borrower (if any), and |
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Liquidity. |
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TO NOTE: |
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Loan Amount: Different FIs have different credit assessment criteria which will determine the maximum loan permissible. This will be determined after the Income documents have been submitted. |
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Credit Record: This can be established through a search with the Credit Bureau (Singapore) Pte Ltd (CBS), which maintains a record of an individual’s credit history with participating FIs. The Quest Line Search, reveals whether you have any legal suits. |
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Debt Servicing Ability: FIs will look at your Debt Servicing Ratio (DSR) - the ratio of affordable repayment based on gross financial commitments. |
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What should I take note of when taking up a housing loan?
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You should do your sums with one of MoneyMind’s highly experienced Mortgage Advisors to determine if the housing loan would affect you financially in anyway, before committing to a particular loan. This is especially so if you are thinking of taking a large loan with a long repayment period because the bigger the loan and longer the tenure, more interest would be charged over the extended period of time.If you miscalculate, you may end up with no choice but to use only cash to pay for your monthly housing loan installments. As a rule of thumb, your monthly housing loan repayment and other loan repayments should not exceed 35% of your monthly income.The following lists some considerations that may affect your ability to repay your home loan installments:
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- Change in housing loan interest rates (for variable rate loans, a higher interest rate may result in higher monthly installments).
- Change in CPF contribution rates or policies (eg. a reduction in contribution rates may mean less CPF is available for housing).
- Change in work status of the borrower/s (eg. stopping work or working part-time to take care of young kids or aged parents).
- Company retrenchment due to downturn in economy or unprofitable business.
- Accident or illness resulting in inability to work.
- Death of the main borrower, and the property is not adequately covered by a mortgage insurance policy.
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TO NOTE:
While a longer repayment period means you will be paying a smaller amount in installments every month, your total interest payment at the end will be much higher.
For example, a normal private property housing loan of $500,000 with an interest rate of 4% pa (the average prevailing interest rate with FIs), 24.9% of the total repayment would be for interest charges should the borrower take a 15-year loan. Should the borrower take a 25-year loan, 36.8% of the repayments would be for interest only! |
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How does the Loan Process go?
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The whole process normally follows the order below:
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Once you have made the decision to buy; you should liaise with one of MoneyMind’s experienced Mortgage Advisors to work out a financing plan based on your income and repayment ability. |
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Our Mortgage Advisors will explain to you the respective housing loan packages available that suits your requirements and match make the best loan for you. |
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Our staff would assist you to fill up a housing loan application form with all relevant documents for loan processing as stipulated by the respective FI. |
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We will take these documents and submit it to the respective FI’s credit department for processing. |
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The credit department will decide on the loan amount and tenure, based on your income, other financial commitments, and repayment abilities. |
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Once approved, a Letter of Offer (LO) will be generated for you. Most FIs will take 3 - 7 days to get this ready. |
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The respective FI’s representative will then explain the terms & conditions of the loan. If you accept the terms and conditions of the loan, he will have to sign the LO, which will be returned to the credit department with all supporting documents. |
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Finally, the FI will issue a Letter of Instruction (LOI) to the appointed law firm on their panel to act for the FI in the particular loan. Most of the time, it will take the credit department 7 – 10 days to process and send out the LOI. |
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What are the documents that I have to prepare for my housing loan application?
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The standard documents are as follows:
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NRIC of all borrowers (photocopies of both the front and back). |
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Option to Purchase (photocopied). |
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Latest income documents, |
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Latest CPF statement showing monthly contributions,
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- latest CPF account balance,
- 3 months computerized pay slip,
- latest Notice of Tax Assessment (NOA). For self employed, he will need to furnish the above and 2 years NOA instead of 1 year.
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For refinancing cases, the above also applies with addition of |
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- the latest CPF Property Withdrawal Statement of account, and
- last 12 months housing loan repayment statement.
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If bridging loan is required, he will need to provide in addition, |
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- the latest detailed statement of existing loan account (HDB or existing FI),
- proof of confirmed sale of an existing property, and
- latest CPF Property Withdrawal Statement of Account.
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What should I do now?
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Contact a MoneyMind Mortgage Advisor to meet up with you so that we can understand your needs, commitments and financial goals and work out a detailed financial plan for you.
If you would like to have more detailed information before seeing anyone, we have publishing a very informative book “HOUSING LOANS 101, Your Complete Guide” which is packed with valuable nuggets of mortgage related information for your housing loan needs compliments of MoneyMind. This book was written specifically to provide all home buyers like yourself with the full details pertaining to your housing loan, the processes, what FIs look into when approving a housing loan, the ins & outs of the whole buying process, right up to the solutions for problems that many are facing with the housing loans.
Buying property does not only entail the initial down payment but also the regular installments. Should you be unable to make the monthly installments due to unforeseen circumstances, your dream home would fast become your biggest nightmare.
With the government’s emphasis on the minimum sum at age 55 (currently at S$99,600 and to be increased to S$120,000 by year 2013), many home owners today are still unsure how it will impact them. With the way things are going, we anticipate that a lot of home owners will be caught in a dilemma in the near future.
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