Why You should get Prior loan approval b4 purchase property

[Dennis Ng]

In more advanced countries such as Australia and U.S.A, people get PRIOR bank loan approval before they start looking for property.

In Singapore, it is the reverse. Most people sign Option to Purchase to buy a property first, next they look for a loan. Due to the nature of our business, we have come across many people who regretted doing this when they could not get the exact loan they want.

Below is a real-life example of a reader of Sunday Times who made this same mistake. Here's his question and my reply which was published on 12 Nov 2006 Sunday Times page 30 "Personal Advisor" column:

Cheers!

Dennis Ng, http://www.HousingLoanSG.com

Question:
My retired parents had recently purchased a 2-room HDB flat from the open market (let's say $120,000). We have only some savings to cover half of the purchase and were hoping to take a $60,000 bank housing loan, where I would continue to service the monthly loan repayment by cash. Unfortunately, most banks I'd asked, do not finance 2-room HDB purchase and I ultimately took on some personal loans and several overdraft facility to make up the shortfall and paid everything in cash.

Currently, my parents are happily staying in their 'own' house, but I am stuck with high interest rate repayment. Is there any other avenues for me to pledge the 2 room apartment for a more reasonable secured lending repayment scheme?

Appreciate your help/advice. thanks

My reply:
As you have discovered, most banks do not grant Housing Loans for HDB 2-room flats. From my understanding, currently only Hong Leong Finance and Standard Chartered Bank offer Housing Loan packages for HDB 2-room flat. For Hong Leong Finance, the minimum loan amount is $60,000, while Standard Chartered’s minimum loan amount is $100,000.

Based on your current situation, the HDB flat is actually “fully paid-up”. Under existing HDB rules, it is not possible for you to pay off your personal loan and ovedraft facility by “pledging” the HDB flat as collateral.

Assuming that you do not own any other HDB flat, one possible option is for your parents to sell this flat and buy another HDB flat with you as one of the owners. By doing so, you might be able to get a bank loan to finance the purchase of this HDB flat provided that your credit profile is healthy and you fulfill the minimum loan requirement of $60,000.

Before you rush out to do so, it is advisable for you to get prior loan approval first, by submitting a loan application together with all the relevant information, including the estimated purchase price, loan amount required, your income documentation and your existing loan commitments in order for the financial institution to assess your application. The financial institution would also check with credit bureau on your credit record before deciding whether to grant you the loan.

If you had done some planning or consulted a Mortgage specialist before you proceeded to use personal loan and overdraft which typically charge interest rate as high as 16% per annum, you would have avoided paying the “extra” interest compared to taking up a Housing Loan which charges interest rates of only about 3% to 4%.

From 1 Jan 2007 onwards, before anyone commits to buy a HDB flat, whether new or resale, HDB requires the buyer to get prior loan approval either from HDB (if buyer qualify for HDB concessionary rate loan) or from a bank/finance company (if a person does not qualify for HDB concessionary rate loan). The reason for HDB to implement this new rule is to inculcate financial prudence and forward planning among HDB flat buyers before they commit to a flat purchase.

You would have similarly avoided the predicament that you are in if you had obtained prior loan approval before your retired parents purchased the 2-room HDB flat. As purchase of a property involves significant amount of money and might entails long term loan repayment commitment, before anyone rushes to buy a HDB flat or a private property, it makes sense for them to first seek advice on Housing Loan and getting prior loan approval to eliminate risk of being rejected a Housing Loan after committing to purchasing a property.

Dennis Ng, spokesman for www.HousingLoanSG.com, a Mortgage Consultancy Portal.

We can help you :

1. get PRIOR bank loan approval before you commit to purchase a property. This service is FREE to you. We’re paid by banks separately.

2. we can help you get FREE Indicative Valuation so that you can use it to negotiate with seller on a “lower price” for your property

3. help you source for reliable lawyer approved by bank and help you save on legal fees by $200 to $500 since we can “negotiate” with law firms as we give law firms “bulk” business every month.

4. FREE Annual Review of Housing Loan to ensure you get the BEST deal year after year after year!

You might be glad to know that our website www.HousingLoanSG.com is one of the few websites in Singapore awarded the Trust SG Certification You can call us at 6737 8801 or 6339 9255 or email us at info@HousingLoanSG.com for our UNBIASED Free Service.