Before 1 January 2003, people buying a HDB (Housing Development Board) flat have to finance it either with a HDB Concessionary Rate Loan or a HDB market rate loan. But since then the HDB market rate loan was replaced by home mortgage from financing institutions, which are gazetted by the Monetary Authority of Singapore.
HDB Concessionary Rate Loan
Compared to a home loan from a financing institution, a HDB loan has more stringent eligibility requirements. The below covers most of them.
- For HDB flats only (resale or direct purchase from HDB)
- At least one buyer must be a Singapore citizen
- Must have a gross monthly income not exceeding $10,000 개인회생자대출 (or $15,000 for extended families)
- For DBSS flat the income ceiling is $8,000 (or $10,000 for extended families)
- For applicants under the Single Singapore Citizen (SSC) scheme, the income ceiling is $5,000
- Must not own any private residence (in Singapore or abroad), including HUDC and executive condominium
- Must not have sold a private residential property within 30 months and taken a HDB loan before
- Must not have previously obtained a HDB loan within 30 months
- Must not have taken more than two previous HDB loans
- Must not own more any market / hawker stalls or commercial / industrial property (Except if you operate the business yourself, have no other source of income, and only own one market / hawker stall or commercial / industrial property)
From July 2013, HDB loan will not be granted for flats with less than 20 years of lease. In addition, for flats with lease between 20 and 59 years, loan approval and tenure will be subjected to certain conditions.
Given the many restrictions of a HDB loan, why then do Singaporeans still want to take one? We delve further into the pros of this loan in the following sections.
1. Higher CPF (Central Provident Fund) withdrawal limit
For financing by bank loans, the CPF Ordinary Account withdrawal cap is up to 100% of the valuation limit (VL), which is the lower of the purchase price or valuation at the time of purchase. If the loan is still outstanding when this limit is breached, the housing withdrawal limit can be increased to 120% VL provided that half (entire) of the prevailing Minimum Sum is set aside for borrowers below 55 (55 and above). This housing withdrawal limit varies with the purchase date of the flat, for purchases from 2008 onwards it is 120%.
With a HDB concessionary loan, however, you can enjoy a higher withdrawal limit.
For direct purchase from HDB, there is no limit to the saving in the Ordinary Account you can use.
For resale HDB flats, there is no limit to the saving in the Ordinary Account you can use, after you have set aside half of the prevailing Minimum Sum.
But from July 2013 onwards, for flats with leases between 30 and 59 years the use of CPF fund is allowed only if the remaining lease covers the buyer till at least 80. For such flats, the withdrawal limit will be computed based on the below formula:
= (The remaining lease of flat or property when the youngest owner is 55 years old / The lease of the flat or property at the point of purchase) x VL
For example, at the point of purchase the buyer is 38 years old and the lease is 40 years. When the buyer turns 55, the remaining lease will be 23 years. Hence
Withdrawal Limit = 23/ 40 x VL
Table 1 further illustrates what is VL.
Table 1: VL
Purchase Price (S$) = 400,000
Valuation (S$) = 350,000
VL (S$) = 350,000
Purchase Price (S$) = 370,000
Valuation (S$) = 420,000
VL (S$) = 370,000
For flats with under 30 years of lease, use of CPF fund is prohibited. In other words, buyers will to cough up cash for the down-payment, monthly repayment of the loan, stamp duties and other miscellaneous fees.
2. No cash component required for the down-payment
A key advantage of a HDB loan is that you do not have to stump up any portion of the down-payment in cash. You are allowed to use the balance in your CPF (Central Provident Fund) Ordinary Account to pay for it completely.
Whereas with a bank loan, you will have to pay at least 5% of the Valuation Limit (VL) in cash. If the loan tenure exceeds 30 years or extends past the age of 65, the minimum amount jumps to 10%.
3. Higher loan quantum
For the first HDB Concessionary Rate Loan you are taking, the loan quantum is as high as 90% VL. In contrast, for bank loans, the quantum is capped at 80% LTV (loan-to-value ratio). It dips to 60% if the loan tenure exceeds 30 years or extends past age 65.