Buying properties for investment in Singapore does not have to be an ordeal. If you know where to look for hidden gems, it’s already half the battle won. The other half of the battle involves maximizing the mortgage loan so that you pay as little as possible before the property is sold. With 80% loan-to-value (LTV), you can easily finance your investment with reasonable down payment and monthly mortgage instalments.
Most of us are aware that property is a big ticket item and investing in property does require a sizable amount of cash in hand. This is perhaps one of the biggest hurdles for people who want to invest in property.
While investing in property requires huge amount of money, the investor does not have to fork out every single cent to buy a property. The investor can leverage on a mortgage loan from the bank, not something an investor can do to buy stocks and shares. This is how many people become wealthy quickly using other people’s money (OPM) and why you should also consider investing in property.
However, before purchasing any property, it is highly recommended that you have a clear understanding of your current financial position as it will affect the maximum LTV you are entitled to, or even determine whether your mortgage loan will be approved! In addition, different types of properties have varied regulations for the loan you can receive.
The difference between how much the bank will lend you versus how much the cost of property is the amount you have to come out with in cash, and this is known as down payment. For instance, if you are purchasing a property that costs around $1 million, financed with a loan quantum of 80% – you will be required to pay a down payment/minimum sum of $200,000. Regardless of your financial standing, the Singapore government has stipulated a maximum of 80% LTV for any non-HDB property purchase. The 20% balance, you will have to pay in cash or cheque, as down payment.
The guide below highlights the down payment required for investment properties in Singapore:
The initial down payment for buying investment property in Singapore is dependent on the loan tenure you opt for and how many existing outstanding property loans you have. The minimum down payment of a property is 20%. However, if property is purchased solely for investment purpose, LTV may be further reduced to just 70% and even lower if you already have existing mortgage loan to service, which means you have to make a larger sum of down payment.
For a long tenure lasting 30 years capped at 65 years old, if you don’t have any outstanding loan, you will be required to make a down payment of only 20% of the agreed property purchase price. For one outstanding loan, the down payment required will be 50%. For two or more outstanding loans, the down payment required will be 60% of the property purchase price.
For loan tenure lasting more than 30 years or above 65 years old, you will be required to make a down payment of 40% (even if you don’t have any outstanding loan). For one outstanding loan, you need to make a 70% down payment. For two or more outstanding loans, you will have to pay 80% of the property price in down payment.
Ways to Come Up with Down Payment
What stops most people from investing in property, apart from securing loans from banks, is to have enough cash to make down payment for the property. Some of you may have heard that there are ways to invest in property with no money down.
There are many ways to fund the down payment of a property purchase. The most common methods include using your savings, or, to borrow from a friend or family. When it comes to property investing, most people do not think of the possibility of raising cash from private investors to cover the cost of the down payment.
But, as we all know, private investors, or investors of any sort do not get themselves involve in a deal unless they stand to benefit from it in one way or another. This is where you need to be creative in structuring a deal.
- Take a loan from private investors and pay back the principal with interest at a predetermined rate, tenure and payment frequency.
- Go into a partnership with the private investors to co-own the property. In this case, the investors will be responsible for making the down payment, while you are responsible for taking up the mortgage loan.
So, now that you are familiar with the tips mentioned above, you should have a better idea on how to secure financing for the down payment when purchasing an investment property in Singapore.