You might have missed it, but there was recently a parliamentary enquiry to the Minister of National Development about a little-known aspect of HDB home ownership: the third HDB loan.
Most of us HDB dwellers know about HDB loans, and more importantly, that you can only have a maximum of two HDB loans in your lifetime. So where does this third HDB loan come from, why does anyone need it, and how can you get one?
Why Do Some People Need a 3rd HDB Loan?
Although the interest rates of Housing and Developmental Board (HDB) loans are typically higher than bank rates, HDB's eligibility requirements are perceived to be more inclusive, and their loan approval easier, faster and more dependable than most banks, especially for those earning a lower income. Furthermore, with HDB's mission to make a home affordable for every Singaporean, there is also a perception that HDB is a lenient lender.
These perceptions have made HDB the first home loan provider of choice for most Singaporeans. However, every Singaporean has the privilege to apply for only up to two home loans for HDB two flats in their lifetime, subject to credit checking, and assessment based on HDB’s existing home loan requirements. Beyond that, a Singaporean has to apply for a bank loan instead.
However, this notwithstanding, Singaporeans may need to apply for a third HDB loan for various reasons, including but not limited to any of the following:
They already have two HDB loans, but suddenly need to move yet again to another HDB flat because of reasons such as divorce, financial difficulties, work, the desire to be with loved ones, or other personal reasons.
They have a poor credit rating, so financial institutions have rejected their home loan applications.
Banks require a cash downpayment that they can't afford, as they offer a lower Loan-to-Value (LTV) ratio (only up to 75% of the property value or purchase price) as compared to HDB LTV which is up to 90% of the property value or purchase price.
Their age may not meet the requirements of financial institutions for loan tenure, and they don’t have someone eligible to join them as their joint borrower.
How Can You Appeal for a 3rd HDB Loan?
In his reply to the parliamentary question, Minister of National Development Khaw Boon Wan said Singaporeans may appeal for a third housing loan from HDB, but they will only grant a third HDB loan under exceptional circumstances.
If you really need a new home anytime soon, and you have no other way to afford it without the help of an HDB loan, here are the steps of the appeal process:
1a. Draft an Appeal Letter on Your Own or Find an Agent That Can Help You Write the Letter.
First of all, there’s no specific template that you need to follow when writing an appeal letter. Just be sure to state out what makes your situation unique, and all the reasons why it should be considered valid for a third HDB housing loan. Of course, you have to know what can convince HDB to grant your appeal.
According to the Ministry of National Development, HDB may grant a third housing loan for two main reasons: when the individual has already exhausted his/her financing options, and when the situation calls for an urgent need for housing.
1b. Speak to A Member of The Parliament to Explain Your Circumstances And Get Them To Draft An Appeal For You.
If you don’t have the budget to pay for assistance, you may also reach out to your member of parliament (MP) and explain your situation in detail. This may also help you understand your chances of getting approved as they are more familiar with the points that HDB wants to see when thinking of granting a third HDB loan appeal. Once they’ve given you advice, you may also ask the member to draft an appeal for you.
2. Send in the appeal to HDB.
Once the paperwork is done, you can finally send the appeal to HDB by going to their branch office, or by applying online via My HDBPage.
If You Can't Get a 3rd HDB Loan, What Can You Do?
As much as we want to remain positive, we have to face the fact that there’s still a chance that your grant may not be approved, either because your circumstances were not considered urgent enough, or because you might be considered a risk. In case this happens, here are some of the things you can do:
1. Hold Off on Moving If Possible.
Try to delay buying or moving to a new home if you still can. Otherwise, you may consider renting a more affordable place for a while or sharing a space with a friend or family member. If you have a bad credit rating, you may also use this time to fix your credit score to be eligible for a bank loan in the future and try to save as much cash as you can also afford to pay the down payment they require.
2. Try Again for A Bank Loan (With Extra Preparation).
If your appeal for a 3rd HDB loan has been rejected, and you urgently need another mortgage, you may try reaching out to other financial institutions to try for a bank loan again. This time, it may also be best to speak with a PropertyGuru Finance’s Home Finance Advisors, who can help you renew your search more effectively, and even help you apply for any prospective mortgage, with their industry experience and knowledge of all the mortgage packages available in the market from the major banks and financial institutions in Singapore.
Of course, if you are looking for a 3rd HDB loan because you'd previously been turned down by banks, you may need to take steps to increase your chances before trying again. Spend the next few months fixing your finances and lowering your expenses, planning your finances to save up for the cash downpayment, and improving your credit rating, because applying for a loan too many times or too often can also affect your credit score. Put yourself in a good position to re-apply with a better TDSR, credit score, and financial reserves, so that the next attempt will be a good one.
3. Find an Eligible Joint Borrower.
If you can’t get a bank loan with a longer tenure because of age, another option for you is to find a younger and financially stable joint borrower who may help increase your chances of getting approved for a mortgage. But the joint borrower has to be someone you trust, such as your family member, because in Singapore, the joint borrower’s name has to be on the title of the property, making him/her your co-owner.
In this arrangement, the bank will use your income and age, and your joint borrower’s income and age to calculate the weighted average age (IWAA). For example, if you are 62 years old with $7,000 monthly income, and your daughter is 25 years old who earns $14,000 monthly, the bank would compute your IWAA using this formula:
[(Your Age x Your Gross Monthly Income) ÷ (Your Gross Monthly Income + Joint Borrower’s Gross Monthly Income)] + [(Joint Borrower’s Age x Joint Borrower’s Gross Monthly Income) ÷ (Your Gross Monthly Income + Joint Borrower’s Gross Monthly Income)]
[(62*$7,000) ÷ ($7,000 + $14,000)] + [(25*$14,000 ÷ ($7,000 + $14,000)] = 20.67 + 16.67
IWAA = 39 years old (rounded up from 37.34)
Now the bank will consider 37.34 as the borrower’s age which means you may now be granted a higher loan-to-value (LTV) ratio, and you may also be eligible for a longer loan tenure, provided that your daughter’s total debt service ratio (TDSR) and gross monthly income meet the lender’s criteria also.
More FAQs on HDB Loans in Singapore
What Is A HDB Housing Loan?
A HDB housing loan is a home loan or mortgage taken up with HDB or the Housing and Development Board. It is meant to help home buyers finance the purchase of HDB flats.
How Does HDB Housing Loan Work?
The HDB housing loan works like any other home loan. Basically, HDB lends you funds to purchase your HDB flat. You will pay monthly instalments (which include part of your principal amount loaned, and the interest charged) and repay the debt.
What Is HDB Housing Loan Interest Rate?
The HDB housing loan interest rate is pegged at +0.1 of the CPF Ordinary Account (CPF OA) interest rate. It is currently 2.6% and has been for over a decade.
How Much Can I Borrow from HDB?
The maximum loan limit is 90%, which is higher than that of banks. However to be eligible, you have to fulfil a set of criteria which you can learn about in this article on HDB loan eligibility.
Need More Guidance? Here’s Where PropertyGuru Finance Comes In.
Applying for a third HDB loan may take a lot of uncertainties, but with a properly written appeal letter, your chances of getting approved may increase significantly.
Again, if you need assistance in drafting your appeal, or in exploring the best financial options based on your situation, please don’t hesitate to reach out to our home finance advisors by sending an enquiry here. We’ll reply in a few hours. Good luck!
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