Looking out for the best bank for home loan but worried about the lack of income proofs?
The number of non-salaried individuals in Singapore has been steadily increasing, reaching 211,000 in 2019, accounting for almost 9% of the workforce, according to the Ministry of Manpower. The COVID-19 pandemic and a growing preference for flexible work arrangements are expected to further boost the number of freelancers and gig workers in the coming years.
This article serves as a guide for non-salaried individuals aspiring to become homeowners and apply for a home loan in Singapore.
Why Does It Matter If I’m a Non-Salaried Person?
If you work for yourself and aren't employed by a company, you're classified as a non-salaried person. This broad category includes freelancers, contract workers, and business owners with varying income levels and earning potential.
When applying for a home mortgage loan, non-salaried individuals must fill out the same application as salaried individuals. Lenders consider similar factors such as credit score, debt obligations, income, and assets to offer the best mortgage rates in Singapore. However, the documentation burden differs significantly for non-salaried individuals.
Eligibility criteria for an entire home loan process tend to favour salaried positions due to the ease with which lenders can assess financial stability through employment history and payslips. These documents provide lenders with assurance of the borrower’s ability to make monthly repayments.
Non-salaried individuals lack regular proof of income from an employer, which can raise concerns for banks and they have to start looking out for no-income mortgage loans. Additionally, banks apply a 30% haircut on variable income, meaning only 70% of declared income is considered when offering a home mortgage loan. For instance, if a non-salaried individual earns $5,000 monthly, only $3,500 is considered for the mortgage, significantly reducing the borrowing amount.
Most banks do not allow monthly mortgage repayments to exceed 60% of monthly income, considering all debt obligations. Thus, monthly repayments cannot surpass $2,100 for someone earning $3,500 after the haircut.
Standard Proof of Income Documents for Mortgage Applications
When applying for a home loan in Singapore, several documents are required to verify income. Here are the key documents lenders typically request:
CPF Contribution Statements: These statements record transactions based on your income over the past 12 months, indicating salary and job stability. Banks use these statements to compute your gross monthly income.
Payslips: Payslips are standard documents validating a person's income. Banks usually require payslips for the most recent 3 to 6 months. Some banks may accept an employment contract and the latest payslip if you've been employed for less than 3 months.
Income Tax Statements: If you lack payslips or receive your salary in cash, your annual income tax statement can serve as proof of income. Some banks require statements for the latest year, while others may request the most recent two years.
Existing Credit Facilities Statements: Lenders need to see statements for all existing credit facilities, such as home loans in Singapore, car loans, personal loans, and credit cards. These statements demonstrate your ability to repay loans.
Tips to Get a No-Income Mortgage Loan in Singapore
Getting a home loan without standard income proof is challenging but possible. If you lack the usual income documents, alternative documentation can help prove your ability to make timely repayments. Here are three tips to secure a no-income mortgage loan:
Invoices Issued to Your Customers: Invoices can serve as alternative proof of income. Provide a report listing all invoices raised in the past year, including project and client details, to help lenders evaluate your income.
Regular Monthly Deposits on Bank Statements: Bank statements showing regular deposits can demonstrate your income. Setting up a business bank account can streamline transactions and make it easier for lenders to review your income.
IRAS Notice of Assessment with Consistent Trade Income: Present your Notice of Assessment (NOA) for two years as proof of income. The NOA, issued by IRAS, details your taxable income and expenses, excluding non-taxable sources of income that could increase your qualifying income.
Final Thoughts
Securing a home loan without standard income proof in Singapore is difficult but not impossible. Remember, multiple rejected loan applications can harm your credit score and prolong financial distress. Therefore, it is advisable to consult with a professional home loan mortgage broker to explore your options and receive advice tailored to your financial situation.
By following these tips and ensuring you have the necessary documentation, you can improve your chances of obtaining a no-income mortgage loan and achieving your dream of homeownership in Singapore.
That’s why you need a professional home loan mortgage broker to discuss your options and get advice based on your specific financial situation
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