Do you think that you can waltz into a bank, demand for a home loan, and get it?
Not a chance.
Unless you fulfil the requirements as listed below, chances are that you won’t be able to get it.
Therefore, to ensure that you’ll get the home loan you want, check against the guideline below!
Credit Score and Credit Enquiries
A credit score works similarly like a company’s credit rating. It’s what lenders use to evaluate your financial position, whether you’ll be able to pay back your loan, or whether you’ll default on it.
The Credit Bureau Singapore is the authority that provides banks with your credit report. AA is the best possible grade, and HH the worst.
Don’t assume that if you have millions sitting cushily in your bank account, you’ll definitely get the loan you want. A bad credit rating can affect your chances of getting a loan, and even a default on a credit card bill from eons ago can be enough reason for a bank to reject you.
Even if you’ve never gotten a loan before, you’ll still be slapped with a rating of C, which isn’t that great, since they won’t know who they’re dealing with.
Be warned – if you wind up with a credit rating below CC, the bank may ask for that you borrow a lower loan amount.
Additionally, if they find that you’ve been going around different financial institutions asking for a loan recently, you’ll be labelled as credit hungry. Your credit rating may plunge, and your approval may be subject to suspicions.
Banks aren’t fools – if you do something like rushing in to load up on your credit suddenly, they’ll have their eye on you. Not all banks will behave like that, but in case they do, this may be a possible reason.
Therefore, ensure that you don’t take on a lot of credit when you’re intending to purchase a house. Repay your loans regularly as well, so that they don’t have a reason to refuse your loan.
Your loan tenure and age cannot be more than the retirement age of 65. The maximum loan tenure itself is 35 years. Don’t expect to get approval for a loan if you’re 50 – pigs might fly.
It’s fine if you’re a regular salaried worker receiving a stable monthly pay. However, it’s different if you’re self-employed. For buyers with variable income, there is a 30 percent haircut.
That means that your salary gets reduced to 70 percent effectively. The purpose for this is to meet the TDSR’s requirements. Make sure that you have sufficient proof that you’re receiving the salary you’re declaring, such as proper IRAS tax forms and/or CPF statements.
The bank uses the valuation of the property to deduce the loan amount. Even if you’re loaning $200,000, but your house is only worth $180,000, the loan will be based on that $180,000.
Total Debt Servicing Ratio (TDSR)
The TDSR is probably the most hated measure of agents or developers. It prevents people from borrowing too much, and to reduce housing prices.
Your total debt repayments (including your car loan, credit card debts, and all other debts) cannot exceed 60 percent of your monthly income. For example, if you make $5,000 a month, and your total debts equal $3,500 (we know how car loans suck our blood dry) for a TDSR of 70%, you won’t be able to get the loan you want.
If you’re getting a resale flat that only has a remaining lease of 30 years, your loan may be declined. It cannot be too short, and has to be at least 40 years.