In Singapore, it’s common to co-borrow on a mortgage with your parents or spouse to strengthen your loan application. When you apply with a co-borrower, lenders will usually consider your combined income and average out your credit scores, making it easier to qualify for a mortgage. Plus, having a co-owner to split the mortgage payments with will prevent you from feeling house poor.
However, agreeing to be someone’s co-borrower is a big financial responsibility. Whether you’re buying a property with your family or your new spouse, it’s essential to go in with your eyes open and understand your commitment. Here are three things to consider before co-borrowing on a mortgage.
You Can’t Own Multiple HDB Flats
An important thing to consider before co-borrowing is that you can only own one HDB flat. If you buy an HDB flat with your parents, you won’t be able to purchase one with your spouse unless your name is removed from your family’s property. However, if your parents needed you to qualify for the condo, removing you from the mortgage may not be financially feasible.
You can still buy a private condo with your spouse while being a co-owner of your family’s HDB flat (as long as the flat’s MOP is fulfilled). But remember that private condos are more expensive and may fall outside your budget as a young newlywed couple.
About a quarter of Singaporeans want to live with their parents or in-laws after marriage. If you’re among them, you may not mind the fact that buying an HDB flat with your parents will limit your future real estate options. It’s just something to be aware of before you enter this kind of financial arrangement as a newlywed.
Co-Borrowing Can Prevent You From Getting New Loans
Co-borrowing on a mortgage can make getting approved for additional loans harder because it increases your Total Debt Servicing Ratio. Your TDSR is the percentage of your gross monthly income that’s taken up by debt repayments.
The Monetary Authority of Singapore only allows borrowers to have a TDSR of up to 60%. So every new debt you add effectively reduces the amount of money you can borrow in the future. That’s why it’s essential to consider how becoming a co-borrower will affect your financial plans. For example, if you think you may want to buy a condo with your spouse soon, it may not be the best time to help your parents qualify for a mortgage.
Keep in mind that loan-to-value limits are also lower for borrowers who already own a home. The LTV limit is the maximum amount of money the bank can lend you, expressed as a percentage of the property’s purchase price or market value, whichever is lower. For borrowers buying their second property, the max LTV is 45%. You’ll also have to make a higher cash down payment of at least 25%.
Co-Borrowing Can Affect Your Credit
Co-borrowing on a mortgage can also affect your credit. If you already have a lot of debt, it’s possible that taking out a mortgage and further increasing your debt load could hurt your credit score. Your credit may also take a hit if the loan payments aren’t made on schedule. So make sure you only co-borrow with someone you trust to be financially responsible and pay their share of the mortgage on time.
A Condo Everyone Can Agree On
When you’re buying a home with one or more co-owners, you have to find a property everyone agrees on. J’den Condo may be just the property you’re searching for! It’s a new development located in Jurong East Central, a vibrant neighborhood with all the amenities you need right outside your doorstep. You’ll have easy access to healthcare services, great schools, shops, restaurants, MRT stations, and more.
J’den Condo also has on-site facilities the whole family will love. There’s a gymnasium, tennis court, lap and kid’s pool, barbecue pits, rooftop terraces, and more. Register for the early bird show flat preview today to tour the development!
