Buying a new flat is an exciting milestone for most people. But as a big-ticket purchase, many will choose to get a loan to service their flat purchase.

Besides taking a bank loan, flat buyers can also turn to the HDB Concessionary Loan (HDB Loan) from the Housing and Development Board (HDB).

But what do you need to take note of when you are applying for the HDB Loan? Here is an explanation of some key pointers.

1. Interest rate, tenure and loan-to-value ratio

The HDB Loan provides housing loans at a concessionary rate for the purchase of new and resale HDB flats. The concessionary interest rate of the loan is pegged at 0.1 per cent above the prevailing CPF rate, totalling to 2.6 per cent.

The loan tenure is capped at 25 years or until the buyer is 65 years old, whichever is shorter

From May 10, 2019, the HDB Loan loan-to-value (LTV) ratio will depend on the extent the remaining lease of the property can cover the youngest buyer to the age of 95 years.

If the remaining lease of the property covers the buyers up to the age of 95, the applicable LTV for the HDB loan is up to 90 per cent for new flats, and of the lower of the resale price or value for resale flats.

Otherwise, the HDB Loan limit will be pro-rated depending on the extent of the remaining lease of the property that can cover the youngest buyer to the age of 95, using the following formula:

For example, if the youngest flat buyer is 25 years of age and is buying a resale flat with a remaining lease of 60 years, the applicable LTV is 72 per cent.

2. Eligibility conditions

To be eligible for the HDB Loan, flat buyers will need to meet the following criteria:

• At least 1 buyer needs to be a Singaporean Citizen;
• Have not previously taken 2 or more HDB Loan, or have taken 1 HDB Loan and the last owned property is not a private local or overseas residential property such as a HUDC flat, property acquired by gift or will, or owned or disposed of through nominees;
• Income ceiling of $14,000 for families, or $21,000 for extended families listed as occupiers of the same flat, and $7,000 for singles buying a 5-room or smaller resale flat or a 2-room new flat in a non-mature estate under the Single Singapore Citizen Scheme;
• Do not own or have owned any residential private property in 30 months before application of HDB Loan;
• Do not own more than one market/hawker stall or commercial/industrial property;
• Must work at the market/hawker stall or commercial/industrial property, with no other sources of income.

The fundamental principle for HDB's criteria in assessing loan eligibility is to ensure they are able to finance their housing loan in the long-term, and not overstretch themselves financially in their flat purchase.

For those who are earning an income with monthly CPF contribution, they will need to be in continuous employment for at least 3 months if their basic salary is fixed or be in continuous employment for 6 months, if their basic salary is variable.

On the other hand, those who are earning an income without monthly CPF contribution, they should be in continuous employment or trade for at least 6 months, and have good credit rating, as well as consistent positive cash flow (such as from bank statements) for at least 6 months, which can be used to service the loan.

The following types of income are excluded from loan assessment:

• Rental income
• Interest from fixed deposit or savings account
• Alimony allowance
• Bonuses
• Dividend income
• Director fees
• Overtime
• National Service allowance
• Claims/reimbursements/expenses
• Overseas allowance for scholarships
• Occupier's income

Flay buyers can complete this questionnaire for a preliminary assessment of their loan eligibility.

3. HDB loan eligibility letter

To be eligible for the HDB Loan, flat buyers must first obtain the HDB Loan Eligibility (HLE) Letter before they commit to the transaction.

The letter needs to be applied in advance, as a valid letter is required when flat buyers book a new flat from the HDB, when they obtain an Option to Purchase from a resale flat seller, or when applying to take over the ownership of a flat by way of transfer.

Applicants without a valid HLE Letter when booking a flat will not be eligible to apply for an HDB Loan later on.

The letter contains the following information:

• Borrowers' eligibility for HDB housing loan
• Maximum loan amount
• Maximum loan tenure
• Monthly instalments
• Amount of cash proceeds to be used to pay for the next flat (for second HDB loan application)

To obtain the HLE letter, applicant and their spouse need to have a valid SingPass, and log in to the HDB HLE website for apply for the letter.

Supporting documents must be scanned and submitted together with the application, and the application will be processed with 14 days of receiving the full set of documents.

Applicants can visit My HDBPage to view application status of the HDB Loan.

#4 Supporting documents required

For HDB to process HDB Loan application, supporting documents are to be submittied. HDB has set different criteria for supporting documents to be submitted by flat buyers, depending on the employment, retirement and home applicant/occupier status.

In a nutshell, the less stable the income, the more proof HDB wants to obtain before disbursing a loan.

For an employee with CPF contribution: Latest three months' payslips and 15 month CPF history.

For an employee without CPF contribution: Latest 6 months' payslips, latest 6 months' bank statements and Credit Bureau report;

For Self-Employed person: Latest notice of assessment from the IRAS or a Certified Annual Statement of Accounts from an audit firm, 6 months' bank statements Credit Bureau report;

For Commission-based and part-time workers: The Commission statements and payslips for the last 6 months, latest 15 months' CPF history, Credit Bureau report and latest 6 months' bank statements;

For odd job workers: Latest Notice of Assessment from the IRAS or a recent letter from the employer certifying your job designation, commencement date, and your commission/salaries for the last 6 months, latest 15 months' CPF history, Credit Bureau report and latest 6 months' bank statements.

For an unemployed person: For full-time students aged 18 to 62, you will need to submit a valid student pass. In addition, if you have been unemployed for less than 3 months, you will need then you should show income proof for the preceding months from the previous employer the gross monthly income and the last day of service plus you have to show the last 15 months' CPF history.

For those who have taken HDB Loan before and are buying another HDB flat after disposing their existing one, they will also need to submit completion statements for the disposal of the flat, or divorce papers showing the division of the matrimonial HDB flat, should the immediate flat was disposed with an ex-spouse.

In addition, first-timer couples who are full-time students or National Servicemen, or have completed their studies or National Service in the last 12 months before their flat application, may defer their income assessment for HDB Loan till before the key collection.

#5 Applicants who have taken HDB loan before

It is important to bear in mind that flat buyers are allowed to obtain maximum of two HDB loans.

For those who are applying for a second HDB Loan, they will need to note that the loan quantum for their latest loan will be reduced by the entire CPF proceeds and part of the cash proceeds from the disposal of the existing or previously owned HDB flat. The amount of cash proceeds to be deducted will be determined by the HDB.

In addition, borrowers who buy an HDB flat before disposing of the existing flat will have to apply for a loan with interest rates pegged to the 3-month average non-promotional interest rate for HDB flats offered by the three local banks.

This loan can be redeemed using the CPF monies refunded and up to 50 per cent of the cash proceeds from the sale of the existing flat, after which the interest rate will be converted to the concessionary rate pegged to the CPF rate.

Borrowers can retain up to $20,000 in their CPF Ordinary Account from the CPF monies refunded.

This article was first published in Dollars and Sense.