The Situation:
A young couple, with the youngest buyer being 24 years old, is interested in purchasing an HDB resale flat that has only 58 years remaining on its lease. They want to know how much they would be able to borrow through an HDB loan and how much CPF savings they can use for the purchase.
The Question:
"How much do we have to pay for LTV (Loan-to-Value) if the unit we are interested in has a remaining lease of only 58 years?"
This is a common concern for buyers looking at older HDB flats with shorter leases, as the amount of loan they can secure and the CPF funds they can use depend on the flat's lease tenure.
The Answer:
When buying an HDB flat with a remaining lease of less than 95 years, the Loan-to-Value (LTV) ratio and the amount of CPF Ordinary Account (OA) funds you can use will be affected based on the flat's remaining lease and how much it covers the youngest buyer.
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Loan-to-Value (LTV) Limit:
- If the lease covers the youngest core member (in this case, 24 years old) to the age of 95, the LTV limit will be 75% of the lower of the resale price or the value of the flat.
- However, if the remaining lease does not cover the youngest buyer up to 95 years old, the LTV limit will be pro-rated from 75%. This means that the older the flat (with fewer years remaining on the lease), the lower the LTV limit.
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CPF Usable Amount:
- You can use CPF savings to finance a flat purchase as long as the remaining lease is at least 20 years.
- For this particular case, where the remaining lease is 58 years, CPF usage will also be pro-rated. Based on a 24-year-old buyer, they will only be able to use around 74% of their CPF Ordinary Account savings for the purchase.
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HDB Loan Eligibility:
- For the HDB loan, the amount you can borrow will similarly be reduced based on the flat’s remaining lease. In this scenario, with a flat lease of 58 years, the buyers are likely eligible for 67% of the HDB loan.
The good news is that HDB loans can still be obtained for properties with a remaining lease of at least 20 years. This flexibility was introduced to help buyers feel more confident when purchasing older flats and to alleviate concerns about their saleability.
How to Determine Your LTV and CPF Usage:
To make the calculations easier, the agent suggested using two key tools:
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HDB Payment Plan Calculator: This online tool automatically adjusts the LTV limit based on the flat’s remaining lease. You can use it to estimate how much loan you are eligible for, based on the resale price and lease period.
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CPF Housing Usage Calculator: This tool helps you calculate how much of your CPF Ordinary Account savings can be used for the flat purchase, based on the flat’s remaining lease.
These government-provided calculators offer accurate and transparent estimates based on your specific situation.
What Happens If You’ve Already Submitted a Resale Application?
Once you submit your resale application to HDB, you will receive a customized financial plan. This plan includes:
- The applicable LTV limit based on your flat’s resale price and lease period.
- The payments required at various milestones of your flat purchase.
The LTV limit will be fixed at the point of your resale application, which means you will have clarity on how much loan you can take and how much CPF you can use before completing the transaction.
Pro-Tip: Check the Lease Remaining Before Deciding
Given that different flats have varying lease lengths, it’s crucial to always check how much time is left on the flat’s lease and how it will impact your financing. For couples like the one in this scenario, who are still young, it’s essential to assess how long the flat will cover their youngest member’s age. The shorter the remaining lease, the lower the LTV ratio and CPF usage.
Changes to CPF Usage Rules:
In recent years, the government has lowered the minimum lease period (MLP) for CPF usage from 30 years to 20 years. This change was made to reduce anxieties about the saleability of older properties and allow more flexibility in buying resale flats.
Under the current rules:
- You can now use CPF funds to purchase flats with as little as 20 years of lease remaining.
- The same minimum lease period applies for obtaining an HDB loan as well.
For older flats, these updates help buyers access financing and CPF funds that were previously unavailable for properties with shorter leases.
In this case, the young couple would likely be able to proceed with the purchase, but they must be prepared for reduced CPF usage and a lower LTV limit for their HDB loan. To get the best understanding of their financial situation, it’s recommended they use the online calculators and carefully review the HDB financial plan once their resale application is submitted.
Are you interested in purchasing an HDB resale flat but concerned about the remaining lease? Don’t let the technicalities hold you back. With the right advice and tools, you can make an informed decision. Speak with a knowledgeable real estate agent today to guide you through the complexities of flat financing, CPF usage, and HDB loans. We’re here to help you secure your dream home!