A beginner's guide to HDB loans (property cooling measures update)

PHOTO: The Straits Times

If you’re buying an HDB flat in Singapore, you often have the option of taking an HDB concessionary loan, better known as an HDB loan. Before you apply for an HDB loan, read our ultimate guide to everything you need to know and all that it will cost you.

1. Who can apply for an HDB loan?

 The first thing to ask yourself before you take up an HDB loan is whether you are eligible for the loan. Here are the main eligibility conditions you need to meet if you’re a first-time applicant for the HDB loan:

  HDB Loan Eligibility Conditions
Citizenship At least one buyer is a Singapore citizen
Household income Maximum $14,000 for families, $21,000 for extended families, $7,000 for singles
Private property ownership Must not own or have disposed of private property in the last 30 months
Commercial property ownership Maximum 1 market/hawker stall or commercial/industrial property

Note: If you own a market/hawker stall or commercial/industrial property, you have to be operating the business yourself and NOT earning income from any other sources.

If you meet all the above requirements, you should apply for the HDB Loan Eligibility letter (HLE). You need to do this before you book a new flat from HDB or obtain an Option to Purchase from a resale flat seller. Fortunately, the HLE letter is valid for 6 months, so there’s no excuse.

Applying for a HLE is an easy, straightforward process that you can do from HDB’s website.

2. What is the HDB loan interest rate?

The HDB loan interest rate is currently 2.60per cent. (It has remained at 2.60 per cent for several years.)

Why is this the main question on many Singaporeans’ minds? Because it’s pretty high. In comparison, bank loan interest rates have not exceeded 2 per cent in almost a decade.

However, HDB loan interest rates have not changed at all, and that kind of stability is often appreciated by homeowners. Imagine not knowing ahead of time how much your monthly home loan repayment is going to be! You wouldn’t know how much to set aside. Those on an HDB loan know exactly what they’re paying each month, and it’ll be the same today as it was five years ago.

However, that’s not to say the HDB loan interest rate will never change – it is always 0.1per cent higher than the CPF Ordinary Account interest rate. Currently, the CPF Ordinary Account interest rate cannot go lower than 2.50 per cent, so if the HDB loan interest rate changes, it can only increase, never decrease.

3. What is the HDB loan down payment?

However, as of Dec 16, 2021, Singapore’s government stealthily increased the HDB loan down payment to 15 per cent at midnight, surprising the country. This came as part of a new wave of property cooling measures aimed at discouraging citizens from buying properties only to rent them out for passive income.

How will this change in HDB loan down payment affect you? Nothing much. Just pay more money only.

Everything else remains the same. The HDB loan amount can be paid in cash or from your CPF Ordinary Account. But 15 per cent is really no joke for some of us trying to make ends meet. Hence, this 15 per cent down payment should be a huge deciding factor whether you should take up a HDB loan.

Assuming you are buying a flat under the Fiancé/Fiancée Scheme. If you and your partner check your CPF Ordinary Account and you only have $30,000 combined in there, then you should probably look for an HDB flat that costs no more than $200,000. Choosing a more expensive flat means you will need to pay the rest of down payment by cash.

It’s always a good idea to find out how much down payment you can afford to pay before choosing a flat. That’s because you can compromise on renovation or furniture costs when buying a flat, but you can never compromise on the down payment, unless you win first prize in Toto.

ALSO READ: HDB concessionary loan: Know your eligibility and how to apply for HLE

4. Type of HDB flat – new or resale

Your first decision when choosing an HDB flat to buy is between a new HDB flat (aka a Build-To-Order flat, or BTO), or a resale HDB flat. There are several factors to consider in this decision, always keeping in mind the downpayment.

Type of HDB flats Advantages Disadvantages
Built-to-Order (BTO) flats Cheaper Waiting time of up to six years
Resale flats Short waiting time More expensive
Sale of Balance Flats Sold at BTO prices

Short waiting time

Limited units to choose from

HDB BTO flats are usually significantly cheaper than resale flats. A 4-room BTO flat in Sengkang can cost as little as $283,000 while a 4-room resale flat in the same area can cost around $510,000. So if you’re planning to get an HDB loan, you’re looking at a downpayment of $42,450 vs $76,500. That’s a pretty significant difference.

However, you will need to ballot for an HDB BTO flat, usually competing with twice as many applicants as there are available units. Assuming you’re lucky enough to get a BTO, you then have to wait as long as six years for the flat to be ready. Trust me, a lot of fights, quarrels, break ups, and babies can happen in 6 years.

Resale flats, on the other hand, can be snapped up in a matter of days, once negotiations with the seller are complete.

However, an in-between option was released by HDB – the Sale of Balance Flats. These are units that are either unsold or sold and returned to HDB for whatever reason. They are often significantly cheaper than a resale flat, and you don’t need to wait for years before moving in, unlike an HDB BTO. Of course, the main disadvantage is you are given limited options to choose from – that is, in an entire block there may only be one or two units you can buy.

5. Location and size of the HDB flat

Once you’ve decided on the type of HDB flat, your next decision is the location and size of the HDB flat. Again, how much of a downpayment you can afford should help you with your decision.

Location matters when it comes to cost. In Singapore, housing estates are divided into mature and non-mature, with mature estates being at least 20 years old. Mature estates usually come with lots of convenient amenities like schools, medical facilities, supermarkets and so on. Thus, flats in mature estates will be significantly more expensive than those in non-mature estates.

For example, a 4-room resale flat in Bukit Batok (a non-mature estate) can cost around $549,999, while a 4-room resale flat in nearby Clementi (a mature estate) can cost around $558,000.

Of course, it also goes without saying that size does matter as well. A larger flat will cost you more than a smaller one, sometimes as much as two times the price!

For example, a 3-room resale flat in Bedok can cost around $468,000 while a 5-room resale flat in Bedok can set you back by $750,000.

6. Cost of buying a BTO or new HDB flat

Other than the main cost of the flat, there are other costs involved. Many of these costs are regardless of whether you’re taking an HDB loan or a bank loan.

Item Amount Payment mode
Online application for HDB flat $10 Credit or debit card
Option fee Up to $2,000, depending on flat size NETS
Stamp duty Based on selling price, e.g. $4,200 for $300,000 flat Cash or CPF
Legal fees At least $257, depending on selling price Cash or CPF
Downpayment 15per cent of purchase price Cash or CPF
Survey fees Up to $375, depending on flat size Cash or CPF
Home Protection Scheme annual premium Varies depending on buyer and loan type CPF
Fire Insurance Scheme five-year premium Up to $7.50, depending on flat size Cheque

Note that the option fee will be refunded to you if you complete the flat purchase, but forfeited if you do not. Think of it like a deposit.

7. Cost of buying a resale HDB flat

Here are the cost and fees of buying a resale HDB flat. Again, many of these costs are incurred, regardless of whether you’re taking an HDB loan or a bank loan.

Item Amount Payment mode
Resale application admin fee Up to $80 Credit or debit card or GIRO
Request for Value processing fee $120 Credit or debit card or GIRO
Stamp duty Based on selling price, e.g. $4,200 for $300,000 flat Cash or CPF
Legal fees  At least $257, depending on selling price Cash or CPF or NETS
Downpayment 15 per cent of purchase price Cash or CPF
Home Protection Scheme annual premium Varies depending on buyer and loan type CPF
Fire Insurance Scheme 5-year premium Up to $7.50, depending on flat size Cheque

Do note that for the legal fees, it depends on whether to you wish to have HDB’s lawyers acting for you or not. Either way, you will need to pay conveyancing fees, stamp duty, registration and miscellaneous.

ALSO READ: 5 common financing issues for HDB upgraders and how to solve them

This article was first published in MoneySmart.