Property Financing in Singapore
When comes to the financial and payment part of buying a new project, there are several major items that buyers should keep in mind, which include payment scheme &timeline, Stamp Duty, home loan, use of CPF, and so on. Other costs will involve a legal fee, mortgage loan stamp duty, bank valuation fee, condo maintenance fee and the like. Here is a very nice home loan roadmap prepared by OCBC Bank for your reference.
Payment Timeline and scheme
For buying the new project from developers, buyers are required to follow the standard progressive payment scheme ruled by the Urban Redevelopment Authority. Kindly please check the payment timeline and scheme here for more detailed information.
Stamp Duty and/or Additional Buyer’s Stamp Duty(ABSD)
Stamp Duty is payable with 14 days after the date when you exercise of Sales and Purchase Agreement. From 12 January 2013, some group of buyers will have to pay ABSD when they purchase some residential property in Singapore, which is depended on their citizen status and count of owned residential property. You can get the some concept about ABSD referring to the following table. You can find more details about how does ABSD apply to the purchase of residential property here.
- Buyer’s Stamp Duty
- Additional Buyer’s Stamp Duty(ABSD)
Property financing with a bank loan
It’s quite common to apply for home loans from local banks to finance your home purchase. Mortgage bankers will use a series of qualification criteria to assess the potential applicants. Under the guidance of the Monetary Authority of Singapore (MAS), home loan applicants must comply with the rules and regulations by Total Debt Servicing Ratio (TDSR) framework and Loan-To-Value Ratio(LTV) limits.
1. Total Debt Servicing Ratio(TDSR) Framework
Total Debt Servicing Ratio(TDSR) framework is a structural and permanent measure package applied to property loans in Singapore. The definite purpose is to encourage financial prudence and avoid any over-borrow behavior that may be beyond one’s financial capacity or put one at the risk of over-leverage. When the market moves away from their advantages, those who have been aggressively relying on bank loans will suffer first from financial trouble. Simply put, TDSR can be understood as the following chart.
2. Loan-to-Value Ratio (LTV) limits and Minimum Cash Down Payment (MCDP)
When you apply for a home loan, the banker will apply the Loan-to-Value Ratio (LTV) limits to your application after meeting the rules under the Total Debt Servicing Ratio(TDSR) Framework. LTV limits and MCDP are subject to factors such as numbers of home loans, loan tenure, and age applicants. Please refer to the chart below for a quick review.
3. Work out your Total Debt Servicing Ratio
MAS’ rules set out the minimum requirements for calculating a borrower’s total debt servicing ratio (TDSR). Local bankers will apply a series of assessment process on your total current monthly debt obligations and gross monthly income, and thus work out your current TDSR Ratio. The total debt servicing ratio (TDSR) threshold for property loans is set at a maximum of 60% of the borrower’s monthly income. For example, if a borrower has existing monthly debt obligations equal to 20% of their monthly income, then the maximum amount they can get for a property loan is based on 40% of their monthly income.
Refer to the following TDSR calculation chart prepared by OCBC Bank, the applicant’s monthly debt includes all outstanding debt obligations list here. Bankers will collect all the supporting documents and check with the credit bureau when calculate and confirm these obligations for the home loan applicants. Those debt obligations include the property loan being applied for, car loans, student loans. renovation loans. credit card loans, and any other secured or unsecured loans. For gross income components,
Gross monthly income refers to the borrower’s monthly income before tax and excludes any CPF contribution made by the employer. For variable income such as commission, bonus and allowance, bankers will take the average of the monthly variable income earned in the preceding 12 months. A minimum haircut of 30% will be applied to the variable income and verified rental income from your property investment. Certain eligible financial assets will be considered with respective haircuts, including such as cash or deposits, foreign currency, stocks, gold, business trusts, and collective investment schemes.
4. Documents to be submitted for home loan application
When you get a banker for a home loan application, the banker will ask you to present supporting documents. Here are some basic documents required for bank home loan in Singapore.
1) Option to Purchase Agreement or Sales and Purchase Agreement, if have not purchased, please provide an indicative purchase price.
2) Provide Valuation Report in the case of buying HDB flat
3) Your NRIC (for Singaporeans and PR) / Passport (for foreigners) of all applicants
4) Fill up bank Loan Application Form and Declaration Form and Credit Cards Statements.
5) Your income statement
A. Scenario one: for employed applicants
a) CPF contribution history showing company name
b) Latest Year Notice of Assessment
c) Latest 3 month’s Payslip
d) CPF Balances
B. Scenario two: for self-employed applicants
a) Latest 2 Year Notice of Assessment
b) CPF Balance
For home buyers who plan to use a bank loan for the progressive payment, it’s important to get In-Principal Approval of mortgage loan from the bank before you make any official commitment (pass the cheque with 5% of the purchase price to the developer or its representative to accept Option To Purchase). Those regulations such as the TDSR framework, Loan LTV limits and ABSD often surprise our clients that the actual amount of loan they can obtain from the bank will be different from their expectations. Proper preparation prevents an unwise decision.
Use of CPF savings
For Singaporean and Singapore Permanent Resident (SPR), money in your CPF Ordinary Account (OA) can be applied to finance your residential property. You can use your CPF OA savings to buy or build a private residential property for occupation or investment. You can pay part of down payment and progressive payment via CPF savings.
The amount of CPF money in your OA account can be withdrawn for housing matters is determined by a series of factors.
- the numbers of property that you own.
- whether the property’s remaining lease can cover the youngest buyer using CPF savings for the property to at least 95 years old.
For residential property bought on or after 10 May 2019, you can use our CPF Housing Usage Calculator to calculate how much of your CPF savings you can use for your home. Click here for more details of the use of CPF money for property purchase in Singapore.
Engaging a lawyer is by default the essential part of buying a residential property. Buyers should clarify the scope of services to be provided and the legal fees payable. In general, when you purchase a property, the services that a lawyer can provide you would include:
- Advising you on the transaction documents i.e. terms and conditions in your OTP and/or S&PA.
- Conducting title searches to verify the title of the property identified in the contract matches with the title record in the Land Titles Registry.
- Providing property law, regulatory and financing advice.
- Checking if there are any regulatory notices or government schemes that will affect the property you intend to purchase.
- Lodging a caveat against the title to the property on your behalf pending completion of your purchase. This serves to notify the public and third parties also interested in this property of your valid interest or claim.
- Liaising with your bank’s lawyer who will prepare the mortgage for the bank.
- Liaising with the bank and CPF Board to ensure that your housing loan and CPF funds are in place and ready for drawdown.
- Completing the conveyance by exchanging your payment for the executed instrument of transfer.
To sum up, a diversified property financing in Singapore will involve the bank loan, CPF OA savings, and cash. To enhance your financial holding power of owning private residential development, potential buyers should be financially prudent and well-prepared.as property loans can be large, long-term liabilities for most individuals and households. Never be in an over-leveraged position for property purchases.