With all the exciting reasons to Move to Singapore, Singapore has managed to consistently attract foreigners to seek out properties here.
However, due to the high values of Real Estate here as well as Stamp Duties and Taxes, not every buyer is able to pay fully in Cash.
Furthermore, with mortgage interest rates as low as they are right now (about 1%), taking a loan has never been more attractive.
However, as a foreigner, getting financing can be a rather difficult and tedious process.
In this article I break it down and let you know:
- What is the maximum amount that can be borrowed
- How banks assess your eligibility for the loan
- Alternative ways to increase loan amount
Maximum Loan Amount
What is the maximum that one can borrow?
There are two ceilings.
The first, is the maximum amount that you are allowed to borrow legally to finance a property in Singapore.
Known as the Loan to Value (LTV), it currently stands at 75%.
Which means that you can borrow up to 75% of your property value or purchase price (whichever is lower).
For some historical understanding, the LTV used to stand at 80% before 6th July 2018.
It was tweaked as part of the Singapore government’s measures to cool the property market.
Take note that the 75% is subject to conditions and is only applicable for the first housing loan.
The second ceiling is the Total Debt Servicing Ratio (TDSR), which was introduced in 2013 by the Monetary Authority of Singapore (MAS).
This ruling restricts your total debt obligations to 60% of your monthly income.
To illustrate, if your income is $5,000, your home loan repayments, plus any other debt repayments, cannot exceed $3,000.
Assessment for Loan Amount
This is where it gets tricky for foreigners.
Because Singapore residents typically have local income to submit for assessment by the Financial Institutions (FIs).
As a foreigner however, income is usually sourced from your home country and this income will be harder to verify unless it is from a well known multinational corporation (MNC).
Multiple layers of supporting documents would be required to prove the legitimacy of this income.
Generally, if it is income from a local company in your home country or director’s remuneration, it is not recognised.
Hand in hand with TDSR is credit assessment which assess one’s credit worthiness.
Additionally, FIs will perform a Know Your Customer (KYC) check.
These will ultimately determine if a loan will be granted to you or not.
Therefore, it could mean that even if you pass TDSR and have eligible income to obtain 75% LTV but failed the credit assessment and/or KYC, a loan will not be granted to you.
The FIs decision is final and we will not be privy to the reason behind such failings.
Alternative Ways to Qualify for Loan
Even if you do not have a strong income source, the good news is that there are alternative methods to qualify for loans.
Cash can be used in place of the required ‘income’ to prove repayment ability.
This is known as the Assets Under Management (AUM) method which means pledging of a certain amount of funds in a FI’s fixed deposit for a period of 4 years.
Downside of this method is having to lock up cash with the FI for an extended period of time.
A more popular method is to ‘show funds’. This refers to showing proof of funds in a foreign bank with a Singapore presence.
The amount of funds needed are not small and therefore these methods tend to be more suitable for the cash-rich who still want to leverage on low mortgage interest rates.
To give an example, a S$2 mil property with S$1.5 mil loan (75% LTV).
Assuming a loan tenure of 30 years, the amount of pledged assets required is approximately S$539k OR showing funds of approx. S$1.8 mil.
Ultimately there is flexibility and there is no need to exclusively choose 1 method.
Often if there is income, it is primarily used first, and then a combination of AUM or ‘show funds’ to boost the eligible loan amount as required.
Other Things to Note
Loan Tenure – Absolutely, the maximum is 35 years, or till the borrower is 75 years old. For maximum LTV of 75%, the loan tenure cannot exceed 30 years or borrower’s age 65.
You might worry, what if you have already committed to a purchase and cannot get the loan?
The FIs can do an In-Principal Approval (IPA) for prior confirmation if you are able to be granted a loan or not, and how much loan you can get.
There are also circumstances where even if the maximum loan approval is granted, the FI would still require you to pledge a sum with them as security.
From getting your IPA cleared first, you can then feel more secure when proceeding with that purchase of your dream home.
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I am a Singapore Accredited Mortgage Planner. I work with many brokers and FIs in the industry.