Your search results

5 Smart Techniques That Resourceful Homebuyers Utilize to Overcome Restrictions on Home Loans

Posted by Jayson Ang on May 16, 2024

| 0

TLDR

When it comes to navigating the complex world of home loans and property acquisition, it’s crucial to be aware of the potential risks and drawbacks associated with unconventional methods. Some tactics, such as using cash-out refinancing for indirect property purchases, artificially boosting property valuations, temporarily showing funds to increase assessed income, altering variable income sources, and seeking alternative financial institutions for down payment funds, may seem tempting but come with their own set of challenges.

These approaches could involve legal gray areas, financial risks, and potential consequences if not executed carefully. It’s always advisable to proceed cautiously and seek professional advice to ensure compliance with regulations and safeguard your financial well-being in the long run.

We are not experts in conveyancing law, so we cannot provide definitive information on the legality of bank loans. However, as home prices continue to rise, some homebuyers have started using unconventional methods.

Some of these methods may exist in a gray area or are common knowledge within the industry, while others may be outright illegal. If someone advises you to employ any of these tactics, it is important to exercise caution as there is always a drawback involved.

While you may be able to secure the loan you desire, it could come at a higher cost to you in the long run.

1. Using The Funds From A Cash-Out Refinancing To Purchase An Additional Property Indirectly

Cash-out refinancing represents a unique loan opportunity that is strictly limited to private assets. Generally, it permits one to acquire funds equivalent to a certain proportion of the property’s worth, often limited to 75%, excluding the amount utilized from your CPF.

For instance, owning a property valued at $1.5 million and utilizing $500,000 from CPF might enable you to obtain $625,000 through cash-out refinancing.

The precise terms and interest rates are subject to variability among different banks. This method essentially allows you to monetize your property without having to relinquish ownership. However, it’s crucial to remember that failure to repay the loan could lead to foreclosure as your property serves as collateral.

One fundamental rule associated with cash-out refinancing prohibits the utilization of these funds to procure another property. Yet, some have found a way around this by investing the loan amount into other forms of assets such as stocks or bonds.

Subsequently, selling these assets provides them with the funds necessary to purchase another property. Technically, they haven’t violated the rules since the original loan wasn’t directly used for the property acquisition.

However, this practice of sidestepping limitations could potentially be construed as fraudulent, depending on whether the lender takes note and decides to pursue legal action.

Financial experts have warned us about an inherent risk involved in this process. The intermediary assets bought with the loan could plummet in value before they’re sold, leading to potential losses.

Also, it’s essential to understand that cash-out refinancing is still governed by TDSR restrictions.

2. Try To Increase The Valuation In Order To Secure A Higher Loan Amount

Presently, the limit for a home loan stands at 75% of the property’s price or its estimated value – whichever is greater. However, this does not account for other factors like age, loan tenure, lease decay, and so forth, which could potentially lower the maximum limit.

Some potential homeowners face a hurdle when it comes to making the initial cash payment. This is particularly challenging when there’s a significant disparity between the seller’s quoted price and the property’s actual evaluation. For instance, if a seller demands $1.8 million for a property valued at $1.7 million, this would necessitate an additional $100,000 in cash.

To circumvent this issue, some buyers attempt to secure a higher valuation. This typically involves leveraging a mortgage broker, or possibly several, to scour various banks until they discover one that will agree to the highest possible valuation.

Although this strategy can boost their loan quantum, it often results in a heftier interest package. The bank that consents to the highest valuation might not offer the best rates at that moment; therefore, over a long duration, the buyer may end up shouldering a substantial financial burden.

Despite this, some buyers perceive it as a worthy risk. We’ve encountered instances where they argue that with a loftier valuation, they could potentially secure a larger loan against the property in the future (as mentioned earlier), or expect a better return upon resale. However, these outcomes are not guaranteed, considering that future refinancing efforts might necessitate a fresh valuation.

3. To Temporarily Show Funds In Order To Increase The Assessed Income

This is kind of an inside tip that’s been floating around in the housing market for quite some time. When you’re thinking about getting a home loan, there’s this thing called the Total Debt Servicing Ratio (TDSR) that you have to consider. Basically, it means that all your debt payments per month, including your home loan, can’t be more than 55% of what you earn monthly.

Let’s say you go over this limit, then you’ve got to cut back on the amount you borrow, probably by making a larger initial payment until your monthly dues fall within the limit. However, not everyone has got that kind of cash just lying around.

Here’s where some banks come in handy. They might be willing to look at your income as a bit more if you can prove to them that you’ve got the dough. The terms and conditions are different with each bank, but let’s say you put $100,000 into the bank, they might see your income as having an extra $1,000 per month. Keep in mind though, you’ll need to show them the money twice: once before securing the OTP and once before everything is finalized.

The funny thing is, nobody really investigates where this money comes from. Some banks allegedly don’t even mind if you take out the money right after. So, it’s possible for someone to borrow the money from a trusted source like their parents, park it in the bank temporarily to get past the TDSR, then once the loan gets the green light and the house is purchased, they take the money out and give it back.

4. Artificially Boosting Or Altering Sources Of Variable Income

For those with fluctuating earnings, such as rental income or sales commissions, banks typically shave off 30 per cent from the income they evaluate. This usually means reducing your latest IRAS tax form-stated income by 30 per cent.

This can pose a challenge in meeting TDSR thresholds, prompting some folks to inflate their evident earnings. Some tactics are straightforward, like upping their reported income (therefore paying more taxes) the year prior to the loan application; but there are craftier ways too. Some borrowers might even alter their variable income sources, like tweaking their portfolio assets to hold more fixed-income items.

The success of these tactics depends on the particular bank, so it’s always a good idea to consult a mortgage broker first. For instance, some banks disregard stock dividends and bond coupons when calculating TDSR, rendering any reallocation pointless.

In more extreme cases, people might get family members or friends to pretend to rent their property at inflated rates, or establish bogus companies that allegedly pay them chunky fixed wages. We’re no legal whizzes, but we reckon most of these tactics would rattle your lawyer, and we strongly discourage such practices.

5. Consider Utilizing Alternative Financial Institutions Or Strategically Timed Borrowing To Secure The Necessary Funds For A Down Payment On A Home Loan

According to the MAS Notice 632 ruling, banks are restricted from offering loans meant to cover the minimal initial payment for a home loan.

To break it down, the first payment on a property is typically around 25% of the overall cost. This includes an upfront cash payment of five percent, followed by the remaining 20% that can be shelled out through a combo of cash or CPF.

Now here’s where it gets tricky. The initial payment seems to be the stumbling block for most buyers. For instance, if you find yourself giving back all your sales proceeds to CPF (we’re talking about a negative cash sale here), you might struggle to cough up the five percent in cold hard cash.

So what do people do? Well, as a last-ditch effort, some turn to non-bank financial institutions. Yes, they might be willing to offer the loan, but beware – their interest rates can be sky-high compared to regular banks.

Then there are those who try to pull a fast one, like applying for two loans nearly simultaneously. They’re hoping that when the home loan is being checked out, the other loan application won’t show up in credit reports just yet. But let’s be clear, this is a gamble at best.

And even if someone manages to play this game and win, it’s worth taking a step back and thinking hard. If you’re that strapped for cash, it might be smarter to save up a bit longer before diving into homeownership.

Should You Buy, Sell or Wait?

If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?

It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.

I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.

I can help you by:

Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.

You May Also Like …

Mandarin Top 5

Top 5 Reasons : Why Ultra-Rich Families Racing To Park Wealth In Singapore

Jayson Ang – October 9, 2024 –

Singapore, a small island nation in Southeast Asia, has become a magnet for the world's ultra-rich families seeking to park...

All Blog Posts Buying Tips Opinion

6 Compelling Reasons Why 3-Bedroom Condos Might Shrink Further

Jayson Ang – November 15, 2024 –

TLDR Three-bedroom units in Singapore have significantly downsized from 1,700-1,800 sq. ft. in the 1980s to around 1,000 sq. ft....

All Blog Posts Opinion

What Has Been The Most Significant Development In The Real Estate Market In 2022

Jayson Ang – December 24, 2022 –

TLDR In 2022, the real estate market saw significant interest rate hikes affecting home loan rates. Despite concerns, the market...

Mandarin Top 5

Top 5 Factors to Look for in a Property Developer

Jayson Ang – March 13, 2024 –

With a highly competitive property market, it's crucial to choose a property developer that you can trust to deliver quality...

Mandarin Top 5

Top 5 Seafood Restaurants in Singapore

Jayson Ang – April 3, 2024 –

Singapore, a melting pot of cultures and culinary delights, is well-known for its diverse food scene. With its strategic location...

All Buying Tips Selling Tips

Should You Purchase a Small Landed Home or a Larger Condo? Insights from Singaporeans

Jayson Ang – August 5, 2024 –

TLDR When deciding between a compact landed house and a spacious condominium, consider key factors like security, parking, maintenance costs,...

All Blog Posts Buying Tips

Planning for Retirement: Considerations for Downsizing Your Property

Jayson Ang – February 19, 2023 –

TLDR Downsizing your home for retirement can bring financial security, closer family ties, and new adventures. Consider the benefits of...

All Blog Posts Buying Tips

6 Must-Know Factors to Consider When Purchasing a Resale HDB in 2023

Jayson Ang – February 5, 2023 –

TLDR When buying a resale flat in Singapore, make sure to walk around the neighborhood to assess actual distances, check...

All Blog Posts Buying Tips Opinion

A Executive Summary Guide to the Singapore Real Estate Market 2023 and Beyond …

Jayson Ang – December 10, 2022 –

TLDR The Singapore real estate market is vibrant, driven by a strong economy, stable business climate, and attractive investment opportunities....

All Blog Posts Buying Tips

A Step-by-Step Guide To Upgrading From an HDB Flat To Your a Private Property

Jayson Ang – January 3, 2023 –

TLDR Understanding the complexities of upgrading from an HDB flat to a private property in Singapore involves selling your HDB...

All Buying Tips

5 Reasons To Invest In UK Property In 2024 Instead Of Saving

Jayson Ang – February 8, 2024 –

TLDR Investing in UK property in 2024 offers significant advantages over saving due to the potential for long-term value growth,...

All Blog Posts

Singapore Property Swapper

Jayson Ang – December 7, 2022 –

Jayson Ang, also known as the Singapore Property Swapper, is a certified Propnex agent and top 1% producer who helps...

All Blog Posts Buying Tips

Discover 11 Helpful Tips for Buying an Older Condo : A Comprehensive Guide for Buyers

Jayson Ang – March 2, 2023 –

TLDR When considering purchasing an older resale condo, ensure you investigate potential en-bloc bids, lift conditions, parking conveniences, playground safety,...

Mandarin Top 5

Top 5 Cocktail Bars in Singapore for a Night Out

Jayson Ang – March 8, 2024 –

Singapore, the vibrant city-state known for its impressive skyline and diverse culture, is also home to an exceptional cocktail scene....

All Blog Posts Buying Tips Opinion

Freehold Properties vs Leasehold Properties: Which is Better?

Jayson Ang – June 26, 2023 –

TLDR When it comes to property investments in Singapore, understanding the differences between leasehold and freehold properties is crucial. This...

Mandarin Top 5

Top 5 Best Hidden Boutique Hotels in Singapore

Jayson Ang – October 11, 2024 –

Singapore, a vibrant city-state known for its iconic landmarks and diverse culture, offers a plethora of accommodation options for travelers....

All Blog Posts Buying Tips

A Beginner’s Guide to Homebuying: How to Choose the Perfect Property

Jayson Ang – May 20, 2023 –

TLDR When considering property investments, understanding your motives is crucial. Factors like accessibility to amenities, remaining lease, transaction history, rentability,...

All Blog Posts Buying Tips

Discover What Else You Can Focus On Beyond PSF – Here’s How!

Jayson Ang – July 17, 2023 –

TLDR When considering real estate investments, factors like property size, location, and PSF play crucial roles in determining affordability. Smaller...