The next steps, Loan and Law.

You have found your ideal unit after multiple viewings,  now its time to calculate your finances and appoint your own law firm.Congrats on your house hunting, now that you have found your ideal unit, the next steps are:

3) Find a bank loan.

You’ll need to secure a bank loan to finance your purchase unless you plan to pay entirely in cash or CPF savings.

You’ll want to take note of how much cash you have on hand and in your CPF account. Make sure the bank is able to lend you the balance, otherwise you’ll have to raise more cash.

For private property buyers, the main regulation constraining how much banks can lend you is the Total Debt Servicing Ratio (TDSR).

“I have found the unit I like, so how to I proceed?”

What is TDSR? 

Total Debt Servicing Ratio (TDSR) refers to the proportion of your monthly gross income that is spent on debt obligations.

According to MAS policy, TDSR must not exceed 60%.

The monthly debt repayment covers loans from HDB, financial institutions and money lenders in the borrower’s name or jointly with another borrower, including the new loan, other existing property loans, car loan, renovation loan, personal/credit card loans, etc.

(a) Total Debt Service Ratio (TDSR)

  • Monthly Total Debt Obligations
  • Gross Monthly Income (excl CPF Contribution by Employer)

What can be considered in Gross Monthly Income? 

  • 100% of monthly fixed income
  • 70% of monthly variable income (e.g. allowance, commission, bonus etc)
  • Financial assets, like bank deposit, that are pledged with the bank for 4 years

For joint-ownership, the calculation is based on combined income and combined debt obligations.

How do banks calculate the monthly payment for the new loan?  

The standard calculation is based on:

Medium term rate of 3.5% on housing loan and 4.5% on non-residential property loan or prevailing rate, whichever is higher.

Actual loan tenor that the borrower is applying. For joint borrowers, loan tenor is determined based on the weighted average age of the borrower, weighted based on their gross monthly income.

Some factors that can affect your TDSR are your salary components, monthly loan commitments, age and loan period. How much income banks can consider is subjective especially If your salary includes variable components, or you are self-employed or working overseas. Under some circumstances, the outcome may differ from banks to banks.

Nowadays, there are many TDSR calculators available on various websites. Nothing is more certain than to formally apply for an In Principle Approval with banks. Let our Mortgage Consultant help you move forward.

4) Find a law firm

How much does a conveyancing cost?

It varies from case to case and firm to firm. It also depends on the depth of client’s pocket and his/her choice of firms/lawyers.

In the case of a purchase, it can range from $2,500 to $5,000 (depending on the purchase price).  Additional charges will be incurred if additional documents are to be drafted by the lawyers, for example, if the terms and conditions deviate from the standard agent’s printed option to purchase forms.

Additional charges will also be incurred if there‘s bridging loan involved and if the full legal requisition is needed.

Usually if it’s a landed property purchase, there are nine such requisitions sent to:

  1. PUB (Water Reclamation Network) Department for sewage and drainage;
  2. LTA (Survey and Lands Department) for MRT works;
  3. LTA (Survey and Lands Department) for street works;
  4. LTA for Road Line Plan;
  5. Building Control Authority for alterations/additions made to the property;
  6. National Environment Agency (Environmental Health Department) for any outstanding issues regarding mosquito breeding, drain chokage, etc;
  7. National Environment Agency (Central Building Planning Unit) if the property is affected by the current drainage scheme;
  8. Inland Revenue Authority for any outstanding property tax; and
  9. URA to ascertain the master plan zoning, any decision on proposals to develop the site, etc.

If all the replies to the above legal requisitions are satisfactory, the sale can be proceeded with or else it may have to be aborted depending on the terms and conditions of the Option.

Find out more on how to decide on the right law firm for you here.