Many parents in Singapore want to support their children in purchasing a property. Parents can help with a home loan in different ways. This depends on your financial goals, loan eligibility, and the type of property.
1. As a Co-Borrower or Joint Applicant
This is especially useful if:
- Your income alone does not meet the 55% Total Debt Servicing Ratio (TDSR) requirement.
Property Types:
- Private Property: Parents must list themselves as co-owners, regardless of their share of ownership.
- HDB: Requires all owners to be listed as borrowers, so parents can only act as co-borrowers if they also serve as co-owners.
2. Reverse Mortgage Arrangement
In some cases, parents can help by paying for the property first. Then, you can apply for a loan secured by the property. Here, parents can act as non-mortgagor borrowers, meaning they do not need to be co-owners of the property.
3. Cash Top-Ups
Parents can also provide cash support to help with:
- Increasing the downpayment, which reduces the loan quantum.
- Meeting TDSR requirements under MAS guidelines for eligible financial assets.
- Paying off part of the loan early, lowering long-term interest costs.
Important: If someone provides a loan as a contribution and not a gift, they must include it in TDSR calculations. This is because it is an ongoing financial commitment.
4. CPF Contributions
If parents are co-owners and have CPF Ordinary Account (OA) savings, they may use CPF funds for:
- Downpayment of the property.
- Monthly instalments.
Note: Using CPF can lower retirement savings. You must pay back any CPF used with interest when you sell the property.
5. Joint Ownership Structures
When parents are co-owners, you can choose how ownership is structured:
- Joint Tenancy: Both parties share equal ownership, and the property automatically passes to the surviving owner upon death.
- Tenancy-in-Common: Allows individuals to divide ownership in different ways, such as 99:1. This is helpful for estate or tax planning.
Key Considerations Before Involving Parents
- Age and Loan Tenure: Older parents may shorten the maximum loan tenure, leading to higher monthly repayments.
- Additional Buyer’s Stamp Duty (ABSD): If parents already own property, co-owning with them may trigger ABSD charges.
- Exit Strategy: Think about what will happen if parents want to transfer their share. This may include stamp duties and legal fees.
Advisory Takeaway
- Adding parents as co-borrowers can improve loan eligibility but may shorten the tenure.
- CPF contributions can ease repayment but reduce retirement savings.
- Cash support is the simplest option to reduce borrowing without complicating ownership.
IQrate’s mortgage brokers are here to guide you through every option. We’ll walk you through co-borrowing, CPF usage, and cash support, explaining how each impacts your loan eligibility, repayment period, and tax obligations. We can also advise you on securing the right financial package for your next home loan!