HDB Bridging Loan: How to Cover a Shortfall When Buying a New Home

HDB Bridging Loan

Many Singaporeans are selling their private properties after earning the opportunity to purchase an HDB property. Government-subsidized properties always see great interest from buyers because of their low price and high quality, encouraging those paying higher regular payments for their private properties to reconsider owning an HDB property.

The government only permits eligible individuals to apply for HDB property ownership and financing to keep prices and demand stable. If you’ve one, then you’re eligible to use any financing relevant to your HDB property ownership, which includes an HDB bridging loan.

To get buyers reading this post up to speed on financing, they’ll learn all about HDB bridging loans, home loans, and how it’s a helpful tool to cover a shortfall before you sell your property.

What is an HDB Bridging Loan?

An HDB bridging loan works similarly to any bridging loan you’ve used previously. If you’re not sure about how it works, here’s an explanation. HDB bridging loans allow you to pay your prospective property’s down payment and initial expenses before you sell your former property.

By doing this, you can buy an HDB flat for sale without worrying about missing the chance while you’re waiting for your net sales proceeds after selling your property.

Here are its basic features:

  • Borrow up to 6 months for a bridging loan
  • Property types that can use this include houses and HDB properties
  • Pay the new property’s down payment before you purchase your property
  • You have the option to start paying your bridging loan right after you’ve sold your old property.

Consider the following scenario: 

You plan to sell your existing HDB flat for a new condominium. Unfortunately, selling your HDB flat isn’t quick enough to give you cash that lets you take advantage of the condo developer’s low down payment promo period.

A bridging loan becomes the “bridge” that lets you take advantage of the low down payment by giving you enough cash for the new condo down payment and 25% of your sellable property’s existing value.

Let’s say the condo you want to buy is priced at S $1,000,000 total, and you’ve already paid the 5% cash down payment but can’t pay for the added 20%. A bridging loan of S $200,000, which is 20% of S $1,000,000, allows you to proceed with the sale.

Pros and Cons of Bridging Loan

Bridging loans are convenient, but they’re still a possibly dangerous short-term loan. Buyers must be aware of the risks involved with bridging loans, so here are the pros and cons of using this financial product.

Pros 

  • Convenient: Don’t wait to sell your property. Take out a bridging loan, pay for your new property, and pay for the loan and its interest with the sale proceeds.
  • Repayments: You can pay your loan principal and then the interest afterward with some bridging loan lenders.
  • Avoid Renting:  Afford a home conveniently and quickly with a high-quality bridging loan. Sell your property and live inside your new prospective house.

Cons

  • Short-Sell Risk: Properties don’t always sell according to the value you’ve planned. If it sells below your planned value, you’ll pay a larger repayment plus interest on your bridging loan.
  • Loan Expenses: Bridging loans require two property valuations, two loan charges, and two interest rates. This will require some planning to avoid becoming overwhelmed by your expenses.
  • High Interest: The longer it takes for your property to sell, the higher interest you’ll need to pay.
  • Termination Fees: Switching from bridging loans to mortgages before the bridging loan term ends may involve some early repayment or termination fees.

Things to Know Before Applying For a Loan

Most banks provide you with a convenient bridging loan, but many careless borrowers can fall into deep debt if they don’t pay attention. You can prevent this from happening by paying attention to these five crucial factors.

  1. Loan Amount

Your property’s net proceeds can finance the down payment and only up to 25% of your new property purchase price. It’s impossible to use either bank or licensed moneylender bridging loans to cover your entire home loan amount, but it can cover the down payment you need.

  1. Interest Rate

Bridging finance isn’t the friendliest option for short-term cash loans possible because it’s like a personal loan that has a high-interest rate. Most bridging financial products have a 5-6% yearly interest rate (licensed moneylenders like A1 Credit Solutions provide 1-4% monthly interest rate as an alternative), while a Singapore home loan interest rate is at 2.15% annually. It’s impractical to use bridging loans as long-term loans because of their high-interest rates.

  1. Monthly Repayments

We expect homebuyers to have enough savings to handle the costs involved in purchasing properties. However, they should still have enough savings set aside in case their income gets low. Bank and licensed moneylender bridging loans are helpful in many aspects. For example, homebuyers who don’t have enough to pay for any downpayment of premium HDB properties will find bridging loans a helpful “bridge” that allows them to pay the selling homeowners’ stipulated downpayment.

  1. Loan Tenure

Bridging loans usually have 6 months to repay the entire loan, depending on your bank. We highly advise all borrowers to be aware of the amount and interest rates they’re borrowing. A loan with six months of repayment seems simple, but it can head someone off into deep debt. Alternatively, licensed moneylenders can provide you a month or until the property’s sell off date as your loan tenure.

  1. Total cost

Your bridging loan principal is only a part of the total cost because the latter includes the following:

  • Total interest repayments by the end of the loan
  • Processing fees
  • Closing administrative fees
  • Possible delayed penalties
  • Other due diligence

Licensed moneylenders charge the following for bridging loans:

  • Processing fee won’t exceed 10% of the total loan amount
  • Maximum of S $60 for each month of late repayment
  • No upfront fees

Bridging Loan: Repayment Methods (Banks Only)

  1. Simultaneous Repayment Bridging Loan

Pay off the home loan for your new home and your bridging loan at the same time. This can work for borrowers who want to pay lower interest on their bridging loan. However, it’s the most tedious of the two methods.

  1. Capitalised Interest Bridging Loan

If you don’t want to have the tedious task of balancing two loans at the same time, this is the best bridging loan you can use. However, the higher interest rate and extended selling time can increase your repayments beyond your budgeted expectations, so beware of using this payment method.

Top Bridging Loans in Singapore

DBS Bridging Loan Standard Chartered HDB Bridging Loan UOB HDB Home Loan Maybank HDB Home Loan POSB Bank Home Loan A1 Credit Solutions (Licensed Moneylender)
Interest rate Prime rate 3M Sibor + 2% p.a. 4% to 5% 1.33% to 1.60% 1.50% to 1.80% 1-4%
Tenure Up to 6 months Up to 6 months Up to 6 months 1-4 Years 1-5 years 6-12 Months
Property type All property types HDB HDB HDB HDB All Property Types

How to Apply For a Bridging Loan?

In Singapore, almost every bank uses the following procedures you’ll find below. Some banks have unique requirements that you’ll need to comply with, so take note of those. Here are some basic steps to help you get started on your financing.

  1. Bank account registration
  2. Call a representative regarding a bridging loan application
  3. Log into the bank’s online bridging loan facilities
  4. Submit all proofs of eligibility and supporting documents
  5. Submit them to your bank’s appointed submission channel
  6. Await loan application results

Common eligibilities you’ll have to fulfill

  • Excellent credit score
  • Singaporeans and PRs above 21 years of age
  • The borrower is currently selling the property
  • The borrower has proof of sellable property ownership

Banks usually ask for the following documents for HDB loans.

  • Option to Purchase (OTP) document
  • Your latest CPF withdrawal statement
  • Your latest bank loan statements

Shaking Hand with Client

Moneylenders

Licensed moneylenders have a simpler method when it comes to the loan application. Here are the steps you’ll need to fulfill:

  1. Visit your licensed moneylender’s website or call them through the phone.
  2. Fill out their form or answer your licensed lender’s questions over the phone
  3. Submit all your documents to support your eligibility and fulfillment of requirements on the website they’ll provide
  4. Wait for an email or call to receive your financing from the branch you submitted your loan application

Here are their eligibility and requirements:

Eligibility

  • Singaporeans and PRs above 18 years of age
  • Singaporean borrower earns S $1,500 per month (S $2,000 for foreigners)
  • Exercised the Option to Purchase (OTP)

Supporting Documents

  • NRIC
  • Proof of income and employment
  • Proof of residence
  • SingPass to log in to CPF, IRAS, and HDB websites
  • Copy of the OTP

Alternatives to Bridging Loans

  1. Temporary Loan Scheme

Singapore’s government offers financial help in the form of the Temporary Loan Scheme. Now, Singaporeans can get a new flat without having to pay a long-term mortgage loan, which works just like typical bridging loans.

You can be eligible for the Temporary Loan Scheme by:

  • Having booked a new flat with the keys ready for collection
  • Having completed and received your home loan from a reputable financial institution.
  • Having applied to sell your existing flat
  • Having enough CPF cash to receive your temporary loan.
  1. Personal Loan 

Both banks and licensed moneylenders offer Singaporeans and foreigners personal loans. Bank-issued personal loans can provide you up to six months of your monthly salary or beyond, depending on your lender. If you consider their loan amount, it’s easy to see how personal loans can fulfill the role of bridging loans for unqualified borrowers.

In addition, eligibility for bank personal loans is quite similar to bridging loans. You can be eligible by fulfilling the following:

  • Excellent credit score
  • Singaporeans and PRs above 21 years of age
  • The borrower is currently selling the property
  • The borrower has proof of sellable property ownership

Licensed moneylender personal loans deem you eligible by providing the following:

  • Singaporeans and PRs above 18 years of age
  • Singaporean borrower earns S $1,500 per month (S $2,000 for foreigners)

Licensed lenders mostly provide you with six months of your monthly salary with up to 12 months to pay everything.

FAQs

Let’s answer some frequently asked questions:

  1. How to Use A Bridging Loan to Lower Your HDB Flat LTV Ratio

You can use bridging loans to make your home loan much more affordable and lower your LTV ratio in instances where your credit score isn’t optimal. This provides sellers a guarantee that you can give them a huge sum of cash on hand, ensuring that you’re not a high-risk borrower, and your lender is willing to share the risk with you because you’ll pay them back for the bridging finance.

  1. How Much Can I Borrow With a Bridging Loan?

Banks are willing to cover a significant amount of sellable property value, but the actual amount is on a case-by-case basis. Most borrowers receive amounts six times their monthly salary equivalent to personal loans, while some only receive enough amounts to pay the property seller’s downpayment requirements.

Licensed moneylenders can offer you bridging loans up to six times your monthly salary or within S $5,000 – S $200,000.

  1. Can I Use CPF to Pay for a Bridging Loan?

You can use your CPF savings to pay for your bridging loan, and you can refund the CPF savings you’ve used after selling your property. Keep in mind that using your CPF savings has an interest that the fund will require you to pay in cash.

  1. How Quickly Can I Get a Bridging Loan?

You can secure your bridging loan within a few days or weeks after you’ve applied for the loan and submitted all the lender’s requirements. On the other hand, licensed moneylenders can provide you with your cash on the same day at their branch after proving that you qualify for their financial products.

  1. Does a Bridging Loan Have Upfront Fees?

Most banks and licensed moneylenders will only charge a processing fee for your bridging loans, and it depends on which bank you’re working with. Some banks would include your processing fees along with interest rate payments.

On the other hand, licensed moneylenders can only charge up to 10% of your principal for processing fees. This is a non-negotiable floor-ceiling rate that moneylenders provide to every customer.

  1. Can I Borrow More Financing If My Bridging Loan Amount is Insufficient?

Yes, you can as long as your lender has enough cash and you have enough equity to secure your loan. Some borrowers use personal loans in these situations because they’re easy to process. A personal loan from most banks and licensed moneylenders can provide you with up to six months of your monthly salary. On the other hand, others use CPF funds because of the same level of accessibility.

  1. Do We Have Closed and Open Bridging Loans in Singapore?

No, we do not. Here’s an explanation of how each of these bridging loans in other countries works.

A closed bridging loan is a short-term loan that collects interest payments from the borrower. The bank or other lender agrees to make the loan available, but only for a limited amount of time, often in six months or less. Closed bridging loans are typically used when the borrower needs funds for an emergency situation and has no access to credit elsewhere.

Open bridge loans refer to a type of loan that does not require a down payment but requires an up-front fee, which is not typically reimbursed. Open bridge loans can be customized to fit borrowers’ specific needs.

  1. What Happens When I Can’t Pay My Loan?

If you cannot make the regular payment on the loan, you may be able to negotiate with your lender to make extra payments or loan extensions. Some lenders can be lenient on high-credit score borrowers with a clean track record. Licensed moneylenders can also stretch your loan repayment period to help you pay back your financing.

However, if you fail to pay your loan, lenders can initiate bankruptcy procedures on your behalf. While the process of bankruptcy is simple, it will create a problematic stain on your financial record, which can limit your prospects for borrowing in the future.

  1. Can I Use a Bridging Loan as a Home Loan?

Yes, you can, but we highly advise against using them as mortgages because they have high interest rates, limited financing coverage, and are just much more expensive than typical mortgages.

To shed more light on this, we’ve explained in a section above that bridging loan interest rates can reach up to 5-6% yearly versus the 2% interest rate that you’ll often see on typical mortgage loans. With these in mind, we conclude that it’s still better to use home loans to pay your property entirely, but we don’t discount the usefulness of bridging loans to address your prospective property’s down payment needs.

To Summarize

  • Bridging loans are available to Singaporeans and foreigners.
  • These financial products are a great way to purchase new properties without worrying about selling your property and taking advantage of lower down payments too late.
  • Both banks and licensed moneylenders offer bridging loans.
  • A licensed moneylender offers up to six times your monthly salary as a bridging loan, which is enough for a borrower with poor credit’s property downpayment.
  • Borrowers unsuitable for bank and licensed moneylender bridging loans can use personal loans and possibly achieve the same result.
  • You can use CPF to pay for a bridging loan and use your property sale proceeds to pay back your CPF. But you’ll need to use cash to pay for the CPF loan’s interest rate.

If you have yet to find a dependable lender for your bridging finance needs, you can always count on us at A1 Credit Solutions. With our friendly staff and excellent loan products, we guarantee only the best loan experience for you. Contact us today to learn more about our products and services.

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