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11 key factors that determine your mortgage loan eligibility in Singapore

When assessing your mortgage loan eligibility in Singapore, there are several key factors that lenders will consider to determine whether you qualify for a loan and what the terms will be. These factors help the bank assess your ability to repay the loan and manage financial risk. Understanding these factors is crucial to improving your chances of loan approval and ensuring you get the most favorable terms.

Key Factors You Must Know About Mortgage Loan Eligibility:

1. Loan-to-Value (LTV) Ratio

The Loan-to-Value (LTV) ratio is one of the most important factors in mortgage eligibility. It represents the percentage of the property’s value that the bank is willing to lend you.
If you’re purchasing a property in Singapore, LTV limits are governed by the Monetary Authority of Singapore (MAS). For residential property, the LTV ratio can vary based on your loan type, property type, and number of properties owned.
- For first-time homebuyers, the LTV is typically capped at 75% (meaning you must pay at least 25% of the property price as your down payment).
- For second properties, the LTV ratio is lower, generally capped at 55%.
- For subsequent properties, the LTV ratio is lower, generally capped at 45%.
- If you’re refinancing a property in Singapore, your LTV ratio will be assessed based on the current value of the property, generally capped at 75%.
- If you’re cashing out from your property in Singapore, your LTV ratio will be assessed based on the current value of the property, generally capped at 45% or 75%.

Impact: A higher LTV ratio means you can borrow more relative to the property’s value, but it may also increase your financial risk and result in higher mortgage insurance premiums and monthly instalment.

2. Annual Gross Income

Your income is a critical factor in determining how much mortgage you can afford. Banks will assess your gross monthly income (before taxes and deductions) to ensure you can make the mortgage repayments.
Lenders use your income to calculate your Total Debt Servicing Ratio (TDSR)/Mortgage Servicing Ratio (MSR), which shows the percentage of your income that goes toward servicing debt.

3. Credit Score and Credit History

Your credit score is an important factor for banks when evaluating your mortgage eligibility. It reflects how well you’ve managed past debt and whether you have a history of late payments or defaults.
In Singapore, the credit score is provided by Credit Bureau Singapore (CBS). A low credit score may lead to rejection of your application, but it’s worth working on improving it before applying for a mortgage.

4. Total Debt Servicing Ratio (TDSR)

The Total Debt Servicing Ratio (TDSR) measures how much of your income is already committed to servicing existing debt obligations. It includes all outstanding loans (e.g., credit cards, personal loans, car loans) as well as the mortgage you’re applying for.
- MAS Guidelines: The TDSR is generally capped at 55% of your monthly gross income. If your total debt payments exceed 55% of your income, your mortgage application could be rejected or you may be offered a lower loan amount.
Impact: Banks will calculate your TDSR to ensure you are not over-leveraged. If you have high levels of debt, it may be harder to qualify for a mortgage or secure a larger loan amount.

5. Mortgage Servicing Ratio (MSR)

The Mortgage Servicing Ratio (MSR) is a critical metric that applies specifically to HDB flats and Executive Condominiums (ECs) in Singapore. It limits the percentage of your monthly gross income that can be allocated to servicing your property loan.

MSR Limit: The Monetary Authority of Singapore (MAS) caps the MSR at 30% of your gross monthly income.
Applicability: This cap applies only to HDB and EC properties and is separate from the Total Debt Servicing Ratio (TDSR).
Income Assessment: When applying for a mortgage, banks will calculate the MSR to ensure your property loan does not exceed the 30% threshold.

Impact: If your MSR exceeds the limit, you may need to:

Look for a lower-priced property.
Increase your down payment to reduce the loan amount.
Improve your income by including additional sources or a co-borrower.

Understanding the MSR helps buyers plan their property purchases effectively, ensuring their housing loan commitments remain manageable and compliant with regulations.

6. Property Valuation

The value of the property you are buying or refinancing plays a crucial role in determining how much the bank is willing to lend. A bank will typically require an independent property valuation to assess the current market value.
The bank will lend you a percentage of the property’s value based on the LTV ratio.
Impact: If the property’s valuation is lower than expected (e.g., lower than the purchase price), the bank may reduce the loan amount it is willing to offer, which could require you to come up with a larger down payment.

If the property’s valuation is higher than expected (e.g., higher than the purchase price), you will be required to pay a higher stamp duty.

7. Employment History and Stability

Your employment status and work history are important factors in assessing your mortgage eligibility. Lenders prefer borrowers with stable, long-term employment histories, as it suggests a reliable income stream to support mortgage repayments.
- Banks generally look for at least six months to a year of employment in your current job, though this may vary depending on your specific circumstances (e.g., if you’re self-employed).
Impact: If you’ve recently changed jobs, you may need to provide documentation (Employment Contract) for proof of employment.

8. Age

Age is another key consideration. Banks typically prefer borrowers to be between the ages of 21 and 65, as the mortgage needs to be fully repaid by age.
The loan tenure (the duration of the loan) will be capped based on your age. For example:
- If you are in your 40s, your loan tenure may be capped at 25 years, depending on your age at the time of application.
- If you are closer to retirement age, you may be required to make higher monthly payments to ensure the loan is repaid before you retire.
- If you do not mind a lower loan to value, your loan tenure may be capped between 30 to 35 years depending on the type of property.
Impact: Your age affects the maximum loan tenure you can secure. Younger borrowers typically have access to longer loan terms, which can make monthly payments more affordable.

9. Down Payment (Cash or CPF)

Down payment is the amount you pay upfront when purchasing a property. In Singapore, you can use both cash and CPF (Central Provident Fund) savings to make your down payment, but there are restrictions:
- For BTO HDB flats, you can use your CPF savings and up to 100% of the purchase price (subject to CPF limits).
- For Resale HDB flats, you can use your CPF savings and up to 100% minus $5,000 cash (Option fee).
- For private properties, the down payment requirement is typically 25%, of which 5% must be paid in cash, and the remainder can be paid using your CPF or cash.
Impact: The more you can put down as a down payment, the less you’ll need to borrow, which can increase your chances of mortgage approval and help you secure a better LTV ratio.

10. Type of Property

The type of property you are buying (HDB, private condominium, landed property, etc.) can also affect your mortgage eligibility. The regulations governing mortgages vary depending on the property type.
- HDB Flats: If you’re buying a HDB flat, the eligibility criteria are more stringent compared to private property. For instance, you must meet the HDB eligibility conditions.
- Private Properties: For private residential properties, do note that some banks may not finance property size of less than 500sqft.
Impact: Your property type may affect the loan terms such as loan tenure.

11. Property Ownership Status (First-Time Buyer vs. Second Property)

Banks differentiate between first-time buyers and those purchasing second or subsequent properties. For first-time buyers, the LTV ratio is typically higher (up to 75%), but for buyers who already have 1 existing home loan, the LTV ratio will be capped at 45% and 35% for buyer with 2 or more existing home loan.
Impact: If you already have an existing home loan, you will need to meet stricter requirements, and the loan amount you qualify for may be lower compared to first-time buyers.

Key Takeaways

Loan-to-Value (LTV) ratio: This is one of the first things lenders assess, as it determines how much you can borrow relative to your property’s value.
Income and Debt Servicing Ratio: Your gross income and total debt obligations (including the mortgage you’re applying for) will determine how much you can afford to borrow.
Credit Score and History: A good credit score helps you qualify for better loan terms, while a poor credit score may result in rejection.
Property Valuation: The value of the property you’re buying or refinancing will directly impact how much the bank is willing to lend you.
Employment Stability and Age: A stable job and being in an age bracket that aligns with the loan tenure are crucial factors in loan approval.

By understanding these key factors, you can better prepare for your mortgage application and ensure that you meet the eligibility criteria required by banks in Singapore.

Your financial future starts with the right advice

In the ever-evolving landscape of home loans in Singapore, making informed decisions is key to securing your financial future.

Our dedicated team of expert brokers from IQrate is here to guide you every step of the way. Don’t let uncertainty hold you back; take the first step towards maximizing savings for your mortgage loan, often your largest financial commitment.