Many banks in Singapore lend money based on debt servicing ratio. This is the ratio of the monthly repayment versus the income cash flow. Many banks in Singapore lend up to 50% to 60% of a person or the family income’s debt servicing ratio.
A debt servicing ratio assessed by the bank is the maximum that the bank is willing to lend you. This is much higher than the financial planning guideline of 35% expenses of your monthly income.
Singapore banks who lend money based on asset based lending will assess your property valuation and lend you money based on your assets.
Asset based lending considered more risky for banks. For those few banks that do asset based lending, they want to make sure that you can service the loan by asking for proof of cash or assets under management of 24 months.
Traditional asset based lending
Someone with a fully paid up property valued at $4m. He goes to the bank to borrow 50% of $4m. He gets $2m in cash for an equity term loan (Cash out). The bank will usually want to see proof of liquid assets of 24 months of the installment amount.
Illustration: -
Age of owner = 50 years old
Property valuation = $4,000,000
Loan to value = 50%
Loan tenor = 20 years
Interest rate = 1.5%
Loan amount = $2,000,000
Monthly repayment = $9,650
In this scenario, the owner would most likely be asked to show proof of 24 months of monthly repayment in liquid assets of $231,600
Alternative form of Property asset based home loan lending
Another form of asset based lending lends out to 70% to 75% of the property asset valuation.
This is applicable for refinancing or new purchase of completed properties.
Scenario: Rich foreigner 50 years old who has a paid up properties and no outstanding loan. The rich foreigner earns an income of only $25,000 a month in his home country.
Property valuation = $6,000,000
Status = Fully Paid up
Loan to value = Can loan up to 70% (up to 75% subject to approval)
Loan tenor = up to 25 years
Loan amount = $4,200,000
He will be eligible to borrow up to $4,216,000 based on his asset and some proof of income instead of $2,529,000.
Under normal home loan lending criteria, this Rich Foreigner will only be able to refinance with cash out (Term loan) of only $2,529,000 and NOT $4,216,000. In this way, cash is freed up for other needs.
Eligibility of Asset based lending:
Age = up to 75 years old
Tenor = up to 40 years
Min Income = $8,000 per month
Documents required for Asset based lending
NRIC = front and back copy. (For foreigners who are NON-PR, copy of passport)
Income = Proof of income via Company letter
OR
3 Months salary slip
OR
2 years of Notice of Assessment (NOA) – from IRAS.
Outstanding home loan
= 6 months to 12 months bank statement showing outstanding loan amount. (if fully paid, copy of title deed)
Option to purchase
= Required for a purchase of a completed property. (Not needed if refinancing)
