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In certain circumstances in which an HDB is the same price as that of a private apartment, the buyer will fail to qualify for a loan on the HDB flat but have no problem obtaining a mortgage to purchase the private apartment. The reason has to do with stricter lending requirements for HDB buyers. Before we go into the technical details, let’s do a quick example.

Say you are debt free and under the age of 35 so that you qualify for the maximum loan tenures for both private and HDB loans. In the case of HDB, the maximum loan tenure is 25 years while it is 30 years for private. You shortlist two homes for sale on an online property listing website. One is an HDB flat at The Pinnacle@Duxton asking $1 million. The other one is a private apartment at Tropical Springs. It, too, is listed at $1 million.

At the bottom of each listing, you will see a Mortgage Affordability calculator that will allow you to calculate the minimum income required to qualify for a mortgage loan per the Government’s rules on lending.

What you see from these two graphics is that the minimum household income to finance a $1 million HDB flat at Pinnacle@Duxton is $13, 349 per month. Yet, the minimum income to purchase a $1 million private flat at Tropical Springs is a relatively low $ 5,987 per month.

How can there be a disparity of $7,362 per month when both homes are priced at $ 1 million and essentially the same loan tenure and loan-to-value ratios are the same? The reason has to do with the lending requirements for HDB.

Here are the technical details

Housing Loan Criteria

The housing loan criteria for buyers with no other outstanding loan (s) and taking up a loan from a bank to purchase a HDB resale flat or private property is as follows:

As you can deduce from the table, there are two technical reasons you must have a significantly higher minimum household income to purchase an HDB flat prices at the same quantum as that of a private apartment.

The two reasons are:

– Lower loan tenure of 25 years for HDB means a higher monthly loan repayment, which, in turn, leads to higher minimum household income;
– The Mortgage Servicing Ratio (MSR) of 30%, which applies only to HDB financing, requires a higher minimum household income to service the same amount of loan.

What does this mean in practical terms?   In certain cases, private flats are more affordable than their HDB counterparts.

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