Total Debt Servicing Ratio (TDSR)

• TDSR is the ratio of a borrower’s total monthly debt obligations to total monthly income
• TDSR is capped at 60%
• The sum of all monthly debt obligations such as existing home loan, new home loan, car loan and personal loan must not be more than 60% of total monthly income

Loan-to-value (LTV) ratio and minimum cash down payment

• LTV is the ratio of the amount of loan to the current market value of the property
• LTV and minimum cash down payment are dependent on number of existing housing loans, loan tenure and borrower’s age
• The remaining balance between the amount of loan granted and the minimum cash down payment may be paid using CPF funds and/or cash

• LTV is capped at 20% for non-individual borrowers

Procedure for application

• Compare home loan packages and shortlist those that meet your criteria with competitive rates

• Consider hiring a mortgage consultant who can help you find the best package for your needs and handle the paperwork
• Interest rates can differ between banks
• Terms of loan packages can also differ, such as lock-in period, fixed versus floating interest rates or rates pegged to the bank’s fixed deposit rates

• Apply for Approval-in-Principle (AIP)

• An Approval-in-Principle (AIP) is a conditional approval for home loans

• An AIP lets you know your eligible loan quantum and monthly mortgage payable
• Having an AIP before booking prevents the forfeiture of your booking fee should there be hiccups in the process of mortgage approval
• Some sellers will not proceed with a sale to buyers without an AIP
• The bank will need to know details such as the type of property you intend to buy and your debt obligations including housing loan, car loan, personal loan and study loan
• Submit documents such as recent pay slips, income tax statements and documents of credit facilities
• An AIP is non-binding. You are free to shop around for the best interest rate
• Submitting too many applications (more than 2 or 3) might affect your credit rating

• Receive AIP

• The bank will inform you on your loan eligibility after evaluating your application
• The validity of the AIP ranges from bank to bank, typically one month
• You can reapply if the AIP expires

• Obtain indicative valuation

• The bank will need the full address and built-in area of the property to give an indicative valuation
• The amount of loan granted (LTV) is based on the lower of the purchase price or bank’s valuation of the property
• The borrower will have to fork out more cash for the down payment if the purchase price is higher than the valuation as the bank will only loan up to 80% of the value of the property

• Pay booking fee to seller or developer
• Obtain Option to Purchase (OTP) and submit OTP to bank
• Receive Letter of Offer (LO)

• The LO is a contract stating the terms of the loan offered by the bank to the borrower

• Sign Letter of Offer (LO)

• This forms a binding contract between the bank and the borrower

• Exercise OTP
• Bank makes loan disbursement to seller upon completion of the Sale and Purchase of the property

• Completion of Sale and Purchase typically takes about 12 weeks from the date of exercise of OTP
  • The bank will send a Loan Disbursement Advice and notice to start monthly repayment
  • Start monthly repayment for your home loan

Source: www.moneysense.gov.sg, MAS, The Edge Property