Applying for a Home Loan as a Fresh Graduate: 5 Tips for Success

Eugenia Liew
Applying for a Home Loan as a Fresh Graduate: 5 Tips for Success
Just graduated from university but already have an ideal someone you want to settle down with and do the ‘BTO proposal’ with? You may realise that as a fresh grad, you may face some limitations when buying a home or applying for a home loan in Singapore, especially if you’re trying to borrow from a bank, as you struggle either with an entry-level income, or even with finding a job in the first place.
If you’re graduating soon or are a fresh graduate and are planning to buy your own property in Singapore, here are some home financing tips that can help increase your chances of getting a mortgage approval and successfully paying the repayments as well.

Tip 1: Consider An HDB Loan First

While banks offer lower mortgage rates, the truth is, banks are less likely to lend you money if you don’t have a stable source of income and/or if you haven’t yet established a good credit score. Banks also have stricter terms and conditions and offer a lower loan-to-value (LTV) ratio as compared to the Housing and Development board (HDB).
The good thing about the HDB loan is that it caters to all Singaporean citizens, including fresh graduates, as part of its objective to make housing affordable for all. Besides, you can always refinance with a bank later on when you have generated more income.
The HDB also offers some payment schemes that younger couples can benefit from:

HDB Deferred Income Assessment

  • Allows you to defer income assessment until three months before flat completion
  • Applicants must be at least 21 years old
  • And one applicant must be 30 years old or below
If you’re planning to get a HDB flat with your significant other, in order to qualify for a HDB loan, at least one of you has to have been earning income for at least 12 months. This may seem like a problem for fresh grads, but HDB does do a deferred income assessment for those in your situation.
Deferred income assessment allows younger couples in Singapore to apply for a HDB flat without an income assessment until 3 months prior to the completion of the flat (that is, you can hold off on getting approval for a home loan until the flat is almost completed, which would be a matter of years – an average of three years before COVID-19, and almost certainly longer now. That’s more than enough time to find a job and get those earnings going!
To be eligible for the deferred income assessment, the couple must be at least 21 years old, and at least one applicant must be 30 years old or below.

HDB Staggered Downpayment Scheme

  • Allows you to pay the downpayment in instalments
  • First 5% after signing the Agreement for Lease (shortly after selecting your flat)
  • Other 5% when you collect the keys (possibly years later)
Another scheme you can take advantage of if you’re buying a flat as a fresh grad is the staggered downpayment scheme. This allows you to pay for the downpayment in instalments, rather than upfront at the beginning of the long wait, when you may not have that much cash on hand (especially considering lack of job or income).
Under the staggered downpayment scheme, the first 5% would still be paid during the signing of the Agreement for Lease a few months after selecting your flat. However, the other 5% would only be paid when you collect your keys. Again, this will be years later, affording you ample time to save up. This applies as long as at least one member of the couple is a first-time buyer.

Tip 2: Don’t Overstretch Your Finances

As cliché as it sounds, not going beyond your means also applies when it comes to buying a property.
In Singapore, there is a legal Total Debt Servicing Ratio (TDSR) requirement, which mandates that not more than 60% of your monthly income can be spent on repaying debts (i.e., loans). It’s common to think that since this is the ‘official’ requirement, as long as you can cross this hurdle, you’re financially ‘safe’.
However, this is not true. In fact, to spend your entire TDSR quota on your home loan may not be recommended.
Instead, choose the size (and price) of the property based on what you can afford without compromising your cash flow.

Tip 3: Wait Until You Have Stable Income

This may not matter as much if you’re intending to take an HDB loan and apply to defer your income assessment, but if you’re hoping to secure a bank loan, you may want to consider getting a stable job first.
It would be ideal to find a stable job first and wait for a few months to settle down before applying for a new home and planning to take on a home loan.
Having a stable source of income (such as a regular monthly salary), and being willing to wait, could increase your chances of getting approved for a bank loan. Waiting would also mean that you don’t have to worry about coughing up enough for savings with immediate urgency. You’ll have more time to save up for the 25% minimum downpayment that banks require.
This means that they’ll consider only 70% of your income as a basis for their loan calculations, affecting your total debt servicing ratio (TDSR), monthly instalment amount, and loan tenure.
(Note: For regular salaried workers, the same 30%haircut is also applied to variable income, such as incentives and variable bonuses.)

Tip 4: Maximise Your Loan Tenure

One thing that is crucial to consider as a fresh graduate is that even if you have been hired and are already earning (and thus are able to get a bank loan), you should ensure your loan is sustainable in the long run.
While you may want to have as a short a tenure as possible, thinking it will lower your overall interest costs, this may not always be the best way forward.
You may want to consider applying for a loan tenure that allows you sufficient space and time to grow and increase in income, while giving your manageable instalments, even if it may potentially mean somewhat higher interest costs. At this early stage of your financial life, with little financial reserves to speak of, you shouldn’t take too many risks.
Remember, if you chose a longer loan tenure to minimise instalments until you’re stable, you’re always able to refinance in later years. You can get a new loan tenure and instalment amount (and interest charge savings) that you will be more able to shoulder then. The same also goes for HDB loans, where you can always refinance to a bank loan anytime.

Tip 5: Keep A Good Credit Score

With banks, even the small things can affect your chances of getting approved for a loan with a low income. One way that can help convince the banks to lend you money is to keep your credit score high. This would convince them that you’re a credible borrower, and that you would diligently pay for your monthly repayments on time.
Some of the things you can do to keep your credit score high include paying for your credit card bills in full on time, not applying for multiple credit cards within a short period of time, and managing your existing loans, if any.

Need More Mortgage Guidance?

Buying a home and getting the most suitable mortgage for yourself requires a lot of research and consideration. These decisions would have a huge impact on your financial situation in the future, and on your life as a whole.
Therefore, it’s always wise to reach out to the experts for proper analysis of your situation and gain realistic advice. PropertyGuru Finance’s home loan advisors have cultivated years of experience and have the heart to help you get the most suitable home and mortgage for you based on your goals, cash flow and other circumstances.
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Disclaimer: The information is provided for general information only. PropertyGuru Pte Ltd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

More FAQs on Home Loans in Singapore

The best home loan and best bank for you depends on your unique financial situation. We recommend speaking with a home loan advisor for specific recommendations. If you're just looking for the cheapest home loan at the moment, you can compare rates on PropertyGuru Finance.

According to MAS, the maximum loan tenure for housing loans is 30 years for HDB flats and 35 years for non-HDB properties (e.g. condos, landed houses, etc).

No, there is a loan-to-value limit of up to 90% for HDB loans and 75% for bank loans, which means you can only borrow up to 90% or 75% of the property's price or value.

No, because of the loan-to-value limit of up to 75% (bank loans) and 90% (HDB loans), there is always a minimum downpayment requirement of 25% or 10% respectively.

HDB loans have a loan-to-Value limit of up to 90%, which means (assuming you're eligible for the full 90% loan) you only need to pay a 10% downpayment. This is the lowest downpayment.