## Financing restrictions

Banks will generally provide financing for the purchase of a leasehold property if home buyers are able to tap their Central Provident Fund contribution. CPF has several ways to calculate this.

The first formula is based on the sum of the age of the applicant and the remaining lease on the property. The total must be equal to or exceed 80 years. For instance, if the buyer is 40 and the remaining lease on the property is also 40 years, the total is 80 years. This means that the buyer is eligible to use his CPF contribution for the purchase of the leasehold property.

If the buyer is only 30, however, and the remaining lease on the property is 40 years, the total equals 70 years. In this case, the buyer will not be eligible to use his CPF contribution towards the purchase of the leasehold property. “This implies that young people cannot use their CPF to buy old leasehold properties”

CPF also requires that a property have a remaining lease of at least 60 years. If the lease on a property is below 60 years, but more than 30 years, a valuation limit is set on the amount of CPF contribution that can go towards the payment of the property.

In this scenario, the numerator in the ratio will be the remaining lease on the property when the purchaser turns 55. Assuming the buyer is 40 today and the remaining lease on the property he wants to buy is also 40 years, when he turns 55, the remaining lease will be 25 years. The denominator will be the remaining lease today, which is 40 years. The ratio of 25 years/40 years is equivalent to 62.5%.

This means if the property purchase price is $1 million, the buyer can withdraw from his CPF up to a limit of 62.5% of the value, that is, $625,000. And that percentage is the valuation limit.

## Loan Eligibility

For first home loan you are eligible up to 80% financing, 2nd housing loan at 50% (30% if loan tenure is more than 30 years or loan past age 65). 3rd housing loan at 40%, (20% if loan tenure is more than 30 years).

Total Debt Servicing Ratio (TDSR) is at 60% of borrower’s gross income. Banks will take into consideration the borrower’s other outstanding debt obligations when assessing the loan application. This is applicable to Private property, HDB and Commercial Property that bought under individuals, sole proprietorships or any investment company that is set up to purchase the property.