You can’t perfectly time selling your property to purchase a new HDB house. Indeed, cash on hand allows you to purchase a property on sale. Thankfully, a bridging loan is the best service to bridge the gap between your property selling period and buying a new house.
This service is a huge plus for Singaporeans looking to upgrade their property despite increasing property prices.It doesn’t take much to apply for and get business loan approval. All you need is a bank you can trust and HDB’s approval to purchase. Keep in mind that HDB does not allow just anybody to purchase government-subsidized properties.
Here’s everything you’ll want to know about bridging loans and quick property upgrades.
HDB Bridging Loan: Pay for Everything While Waiting to Sell
Bridging loans allow you to meet your payment timings perfectly. Banks offer bridging loans to borrowers by evaluating their sellable property’s value. In doing so, they can make a new house down payments using their bridging loan amount. This benefit is crucial because most selling homeowners require a huge property down payment for the reservation.
A bridging loan eases a homebuyer’s time-strict situation. Buyers can use early-bird down payment promotions with cash on hand before selling their properties using this loan. Truthfully, this financial product has its pros and cons (which we’ll discuss later). However, its benefits are stellar if you use them properly.
Are You Eligible for a Bridging Loan?
Anyone above 21 years of age living and working in Singapore can apply for a bridging loan. Most banks will require you to fulfill the following:
- To be 21 years of age
- A Singapore Citizen
- A Permanent Resident
- A Foreigner in the process of selling their Singapore-owned property
In addition, financial institutions will ask you for the following documents:
- Identity Card / NRIC/Working Pass (for foreigners)
- Proof of residence (utility bill, a letter addressed to you, or tenancy agreement)
- Proof of employment (COE for those employed less than 3 months)
- Recent 3 months payslip
- Copy of HDB’s Option To Purchase (OTP)
The Application Process
Most banks have this easy bridging loan application process that uses their apps or websites. While it’s not an accurate representation, it can give you a clue. Call your bank or visit their website to learn about the exact bridging loan application process.
- Visit your bank’s appointed portal
- Create a digital account
- The bank might ask you to open a bank account with them if you’re a new customer
- Make your deposit
- Locate the option to apply for a bridging loan.
- Use their online interface to submit the required proof of eligibility documents
- Wait for loan application approval.
- Most banks disburse bridging loans within your bank account.
For offline applications, you can visit your chosen bank’s branch. Then, you’ll likely start at step 3.
Bridging Loan Pros and Cons
A bridging loan is greatly convenient. HDB properties are much more affordable than privately manufactured properties. As a result, you’ll likely borrow a lower-amount bridging loan. Despite its clear service benefits, bridging loans have their respective pros and cons. Learn more about them below.
- Convenience: You can’t tell an HDB property seller that you can sell your home by tonight and pay the new house down payment by tomorrow. However, you can tell HDB property sellers that you’re taking out a bridging loan while waiting for your property to sell.
Plus, you can tell them you can pay for the down payment and part of the property’s loan-to-value ratio.
- Flexible Repayment Options: A capitalised interest bridging loan allows you to pay your mortgage before your interests. By the bridging loan term’s end, you’ll pay the entire interest as a lump-sum payment.
On the other hand, a simultaneous repayment bridging loan has borrowers pay for both interest and mortgage at the same time.
- Your Very Own Property: You won’t need to rent another property while your sellable home is going through an open house ocular. With bridging loans, you move into your new property after paying the down payment.
In addition, you are paying for a new home and not paying rent for a property you cannot have in the future.
- Low Interest Rate: Bridging loans typically have a 5-6% monthly interest rate. This amount is low compared to a six-month personal loan. A personal loan can have an 8-10% annual interest rate charged daily.
In addition, a bridging loan conveniently gives you the correct amount. A personal loan’s six-month figure can act as a bridge between property sale and new house purchase. However, it might be lacking or too excessive for some homebuyers.
- Fast Application Results: Most banks can approve your capitalised interest bridging loan or simultaneous repayment bridging loan within a day or week. You’re most likely to receive approval with special bank bridging loan packages.
However, you’ll receive approval as long as you submit all your eligibility-proving requirements on time.
- Short Repayment Period: Most banks provide you with 6-12 months loan tenure. This period might be too short if you have a high purchase price.
However, if your real estate broker can give you a solid timeline, a short bridging loan period might work for you and your existing property.
- A Risky Proposition: If you sold your house lower than your bridging loan, you might need to increase your property loan repayment in the future. However, if you sell your house at a higher price, you might end up paying penalties and higher interest for possibly going beyond your loan’s term.
- Dual Property Valuation: Bridging loans will have you work with two financial institutions. Therefore, you can expect both institutions to give you different property valuations. Your private property might cause down payment loan amount issues because it might have higher or lower equity.
- Monthly Interest Charges: Mortgages charge interest rates daily but value it per year. On the other hand, a bridging loan has varying interest per month.
This charging system can have you pay higher interest than the amount you’ll regularly pay for mortgages.
- Exit Loan Termination Fees: Any bridging loan has an exit loan termination fee. If you pay too early, banks and financial institutions will likely charge an exit loan penalty. On the other hand, account closure termination costs exist, too.
Bridging Loan Details to Consider Before Applying
A bridging loan is a convenience for borrowers to help perfect their purchase price timing. However, without awareness, borrowers can end up with poor sales proceeds from the property’s purchase price.
Therefore, we highly advise that you look into the following bridging loan details before applying for a loan.
The standard bridging loan typically funds up to 25% of your total property’s price. Most sellers will set 20% as the property’s down payment. In addition, higher bridging loan amounts will be unfair for borrowers.
Imagine having a monthly interest charge and a one-year penalty on a full-priced HDB flat. However, a successful property transaction can always pay off your bridging loan plus interest.
The usual home loan rates are lower than 5%. On the other hand, bridging products have an average of 5-6% charge. In addition, both capitalised interest bridging loan and simultaneous repayment bridging loan products give you only better repayment flexibility. The payment methods won’t drive down your interest.
Every borrower in Singapore must have enough cash set aside for their bridging financing’s regular repayments. Always take your time to budget and realistically assess your financial situation. Account for all your net sales proceeds even without a confirmed property purchase.
Estimating sale proceeds can be tricky. However, lacking funds to pay for your mortgage and bridging financing repayments can leave you in deep debt.
Most bridging financing has a six-month loan tenure. However, tenures can extend depending on the bank you’re using. Ensure you’re always paying your dues because this financial product’s penalties are costly if you mismanage it. Compounded interest, loan, and mortgage repayments are never excellent news.
Top 3 Bridging Loan Products in Singapore
If you’re looking for excellent bridging loan packages, here are some of the best offers from Singapore’s banks. Make sure to read each detail and fully understand their respective terms and conditions.
|DBS Bridging Loan||Standard Chartered’s HDB Bridging Loan||UOB HDB Home Loan|
|Interest rate||Prime rate||3M Sibor + 2% p.a.||4% to 5%|
|Tenure||Up to 6 months||Up to 6 months||Up to 6 months|
|Property type||All property types||HDB||HDB|
How to Get Your Bridging Loan Application Approved
Like other loans, bridging finance requires your full compliance with the bank’s requirements. If you fulfill all the eligibilities above, fulfilling the additional requirements below will increase your chances of loan application success.
Excellent Credit Scores
You won’t have many approval chances with poor credit scores. However, rebuilt and pristine credit ratings speed up and almost guarantee your bridging loan application success. Therefore, evaluate your credit scores before applying for a bridging loan.
Your total debt servicing ratio (TDSR) is your financial capacity to take on added financing. If your debt, utility, and necessity repayments take up more than 40% of your income, banks will reject your claim.
However, selling your property lowers your TDSR and replaces it with your bridging finance and future home loan repayments.
Verified Property Value
Lastly, have professional appraisers verify your property’s real estate value. In doing so, you have an accurate selling figure. Doing this helps you make accurate budgets and plan your financial statements accordingly.
If you have yet to find them, you can always use Instant Loan’s financial institution quoting service. Get up to three high-quality quotes from the best financial institutions. Visit our website to get a quote today!