Bank Loan for 2nd PropertyLoan from a bank for the 2nd property
You must discard your HDB apartments within 6 month of purchasing the property. If you are a Singaporean resident, you will be charged 12% extra stamp duty (ABSD) on your second home sale. The TDSR - Total Debt Servicing Ratio - was implemented as part of the real estate refrigeration programme to avoid overburdening the borrower with their home loan.
TDSR is currently 60 per cent, which means that you cannot use more than 60 per cent of your GDP per month to support all your credits. These include auto credits, home building credits and even major bank credits. Loan-to-Value (LTV) Relationship - For your first home loan, you can get up to 80 per cent LTV relationship with a bank loan and 90 per cent with an HDB loan.
However, the LTV is dramatically cut when it comes to the second rent subsidy. As we are discussing obtaining a home, a second home loan with a bank means that the maximal LTV rate for your loan is 50 per cent for up to 30 years term and up to the ages of 65 years.
You must pay at least 25% of the deposit. The HDB apartment was purchased for $500,000 and they took over a 20-year credit period from the HDB. Let's say the pair decide to buy a two-bedroom condo with a $1 million dollar limit. You can see that the overall amount needed to fund a second property while at the same time disbursing your first home loan is quite a large one.
Therefore, unless you have a lot of free cash handy purchasing a second property will definitely be biting off a huge lump of your savings. What's more, you'll be able to buy a lot of free money at any time. Maybe you also want to clear your goals before purchasing the second property - do you want to achieve rentals? Are you going to be able to pay the loan even if you cannot find a lessee?
Conversely, the situation will dramatically alter if one is able to take out the first home loan before purchasing the second property. Suppose Mr and Mrs Tan took more for themselves or were able to repay the remainder of their HDB loan within 10 years. Purchasing the second property would then be much simpler, as the following chart shows:
If you are able to process your first home loan first, your advance costs will be halved, so your second loan will be regarded as your "first" home loan, allowing you to resume up to 80 per cent LTV. When you have enough CPF to make the 15 per cent deposit, your advance costs will be further cut to just $142,500, a much smaller amount.
It is advisable to make an exact evaluation of your finances and how much you can borrow before buying a second property. Keep in mind to work within your budgets and schedule for eventualities so that you don't end up in a position where you can't affordable your home loan.