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18 Dec 2018

Points to note prior to buying your new home


1. Mortgage Basics
Looking to buy that dream home that you have had your eyes on? Transform your dream home into reality by learning more about what it takes to qualify for a home loan. Taking up a mortgage loan is a huge financial commitment and it is important to understand the current property market regulations, the eligibility criteria to obtain a home loan and your level of financial affordability.

2. What determines your mortgage borrowing power?
Prior to purchasing your residential property, you should first check out your home loan eligibility, which can be derived based on your total income earned and your total obligations. That’s why it is vital for you to declare all sources of income and debts accurately because based on your declaration, the bank can derive your Total Debt Servicing Ratio (TDSR). From your declaration and required documents, the bank will calculate and advise you on the maximum mortgage loan amount that you would be able to borrow.

3. What is TDSR?
TDSR is calculated where the total amount of obligations should not exceed 55% of the total income earned.
TDSR = (Total Obligations) / (Total income earned)
           = must not be more than 55%

4. Examples of income sources that can be declared to calculate TDSR

i) Monthly Fixed Income
ii) Variable Income (Bonus, Trade Income)
iii) Rental Income

5. Examples of debt obligations to be declared for TDSR calculation

i) Monthly installments (Existing property, car loan, student loan, renovation loan etc)
ii) Monthly Credit Card/Credit Line (Monthly Minimum Repayment)

6. Why is it advisable to obtain an In-Principle Approval (IPA)?
In-Principle Approval (IPA) refers to your agreement with the bank where the bank will calculate your home loan eligibility based on your past credit history and current financials. After reviewing your IPA application, if you are eligible to obtain a home loan from the bank, the bank will inform you the approved home loan amount. It is prudent and important for you to get an IPA from the bank before obtaining the Option-to-Purchase (OTP) to purchase your home in order to avoid the situation of being unable to get the desired mortgage loan amount after having submitted the OTP. As OTP expires after a certain period, you will have to forfeit the booking fee paid if the loan amount that you would like to apply for is not successful. Hence you should obtain your IPA as soon as you have shortlisted your dream property. An IPA is typically valid only for 60 days. After an IPA expires, the whole application process will need to be repeated with a fresh set of required documents to apply for a new IPA.

7. Advantages of obtaining an IPA

i) Peace of mind when purchasing your residential property.
ii) Speedy completion of the loan application process. After you have secured an IPA, you only need to submit an OTP as the final document before you get your formal home loan approval.

8. What are the factors that determine mortgage loan approval?

i) Total Debt Servicing Ratio (TDSR)
ii) Total Income
iii) Total Loan Repayments
iv) Applicant's credit score
v) Age
vi) Property valuation
vii) Remaining lease of property

9. How can you improve your TDSR?

i) Improve your credit score by paying your credit cards and other liabilities in a timely manner
ii) Proper debt management by consolidating and paying off your debts (to your best ability) and not taking up any new loans after you have decided to take up a mortgage loan.

10. What are Eligible Financial Assets and how can it improve TDSR so you can secure your desired mortgage loan amount?
Eligible financial assets of the Borrower can be defined as:
(A) liquid assets comprising Singapore dollar notes and coins (including deposits)
(B) other assets which have a secondary market or have a reasonable basis for valuation, and to the extent that the asset is unencumbered, including:

i) units in a collective investment scheme authorized or recognized by the Authority under the Securities and Futures Act;
ii) units in a business trust registered with the Authority under the Business Trusts Act;
iii) debentures or stocks issued or proposed to be issued by a government;
iv) debentures, stocks or shares issued or proposed to be issued by a corporation or body unincorporated;
v) structured deposits,
vi) foreign currency notes and coins (including deposits); and
vii) gold

By owning or having these financial assets, it can be included into your pool of eligible assets to calculate your total eligible income and thus, increasing the eligible loan amount that you can be granted from Citi.

The value of the financial asset that is added to the eligible income will depend on whether the financial asset is:

i) Liquid or Non-liquid
ii) Pledged with Citi for at least 4 years



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