FAQ
What is the difference between pre-qualified and pre-approved?
How do I know how much I can borrow?
What are debt ratios?
How debt ratios affect how much you can borrow?
How to verify your assets and income?
If I get paid in cash, how do I verify that?
Does my annual bonus account for my salary?
How do I purchase a property if I need to sell my existing property for down payment?
What is Credit Standing?
What Items In My Payment Record Affects My Credit Rating?
What Is The Minimum Credit Score Do I Need To Get A Mortgage Loan?
What Is A Lock In Period?
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What is the difference between pre-qualified and pre-approved?
A pre-qualification is simply a discussion between you and a mortgage officer. The mortgage officer will ask you some general questions about the property in question and your personal financial position. Details can include your annual income, your vehicle loan, your study loan, etc. The mortgage officer will then inform you in general if you are able to obtain the mortgage or property refinancing that you are seeking.
A pre-approval is when you have submitted all required documents and made an application for the property mortgage or refinancing. Your financial position is verified by the documents that you are required to submit. And your mortgage application is approved on the basis that all verified details and mortgage application details remain unchanged.
Whether you will be able to obtain the lowest mortgage rates or best mortgage rates will be determined when you have finalised the actual property purchase.
How do I know how much I can borrow?
There are a lot of factors that can determine your mortgage quantum and obtaining the best home mortgage rates. But the most common factor is your debt servicing ratio with the lender’s guidelines. Your income will be computed to determine how comfortable you will be in servicing the mortgage. Based on your comfort level determined by the lender, the mortgage amount will be computed.
Effectively, that generally means that the more guarantors included in the mortgage application, the higher the income. Therefore, a higher mortgage quantum may be offered.
This can work for both property purchases and property refinancing.
What are debt ratios?
This is the most widely used lending assessment concept used today. Don’t get frustrated when a mortgage officer toss about debt ratios of 40%, 50%, etc. It is just a formula they use to calculate your ability to service the mortgage.
If a lender is comfortable with a debt ratio of 50%, that means that 50% your income will be used as a base to calculate your debt comfort level. Other factors withstanding, the monthly payment for the mortgage plus your existing financial commitments must not be above 50% of your monthly income.
How debt ratios affect how much you can borrow?
Debt servicing ratios are used in almost every loan you apply for. Different ratios are used for different types of loans. However, they only serve as guidelines. Even the same type of loan can implement different ratios based on the loan amount, individual credit rating, type of property, etc. There is really no concrete rule.
How to verify your assets and income?
To verify your assets and income, the lender usually ask for your recent bank statements, pay slip, or Notice of Assessment. This will show the consistency of your income.
Lenders would prefer to see that you have saved up the money to purchase your property instead of borrowing the money form somewhere else. If your bank statements always run in low balances and there is a recent $50,000 deposit, you can bet that that can be assumed as borrowed money. Be sure to be able to explain where the money came from if they are your legitimate savings or income.
If you have other properties under your ownership. Provide tenancy agreements if those properties are rented out. This will show that your mortgage for the other properties will have little stress effect on the mortgage that you are now applying for.
If I get paid in cash, how do I verify that?
This is an undesirable situation to run into when applying for a property mortgage loan with a low mortgage interest rate. One thing you can do is to request your employer to write a letter stating your salary on the company letterhead, signed off with a company stamp.
Another way is to show your monthly cash deposits into your personal account. If you are unable to show a consistent monthly deposit that tallies with your declared income, the lender will have justified reason to doubt your declared income for the property mortgage loan application.
Does my annual bonus account for my salary?
I know exactly what you mean. I’ve had mortgage clients who had annual bonuses ranging from 4 to 9 months of their monthly salary.
Let’s put it this way. If you are using your monthly payslips to verify your income, there is no way to prove your FAT bonuses. That is why the best document to verify your income is your personal “Notice Of Assessment (NOA)”. Your NOA will account for your full annual income for the lender to assess whether you will be able to acquire the property mortgage or refinancing that you are applying for.
That is why lenders always ask for at least 2 years of documented income for mortgage loan assessment. This is to judge whether your annual income is consistent on a yearly basis.
How do I purchase a property if I need to sell my existing property for down payment of the new property I’m purchasing?
Because there is a justified reason for a cashflow squeeze in this situation, lenders have actually created products just to cater to it. It’s called a Bridging Loan. (Do not mistake this as the SME Bridging Loan Programme Offered by SPRING Singapore) This loan will cover you cash shortages on the initial new property purchase in the view that you will be selling your current property AND will settle the Bridging Loan after you have sold off your current property.
The Bridging Loan “Bridges” the time lag and cash flow squeeze between the period where you purchase a new property and sell your existing property. Check with your lender for more details.
However Bridging Loans have high interest rates. Do not leverage too much on it.
What is Credit Standing?
It is an overview of your money management determined based on your payment history. Every legitimate loan you have and the promptness of your payments are logged in a database. The data collected will be used to judge whether you are a responsible paymaster. Items include credit cards, vehicle loans, study loans, renovation loans property loans, etc.
It is the single most important factor that determines the outcome of your property mortgage loan application. Checking your credit standing is the first step in the property mortgage loan assessing process. It occurs even before your income, property details, and ability to repay are being assesses.
That means that a loan analyst may not even have a chance to assess your property mortgage loan application if you have a bad credit standing. It is not necessary to have a credit standing with flying colours. But it is essential NOT to have a bad credit standing.
You can purchase you personal credit report at the local credit bureau or post office.
What Items In My Payment Record Affects My Credit Rating?
Generally, any legitimate loan you obtained from a licensed financial institution will be recorded in your credit report. The rating model reviews the timeliness of your due payments. Different scores will be given based on how late your payments were in 30-day bands. That means you will be scored based on whether your payments were late by 30days, 60days, 90days, etc.
More emphasis is given on your most recent payment behaviour. This means that a whole year of timely payments can give you a bad rating if you made very late payments in the most recent 2 months.
If you have a history of bad debts, your credit report will show. Depending on the financial institution, how they see this information can vary.
What Is The Minimum Credit Score Do I Need To Get A Mortgage Loan?
This depends on your relationship with the bank that you are applying with. Credit scores don’t automatically approve or decline anyone. However, good credit scores will only help your case.
What Is A Lock In Period?
A Lock-In period is a period of time that you are not allowed to pay off the mortgage loan. Doing so will trigger a penalty charge depending on the specified amount stated in the official facility letter.
Because best mortgage rates can vary over time, you may be tempted to refinance your property due to falling interest rates. With this in mind, financial institutions apply the lock-in period so that they can be rewarded for approving a mortgage loan to you in the first place.
