Common questions on renovation financing in Singapore
Getting the keys to your new home is the start of an exciting new journey.
You’ll find yourself planning your renovation by browsing websites for inspiration, visiting interior designers and prowling furniture shops in search of the best deals. It can be tiring, but exhilarating when you have a vision of your dream home to work towards.
But let’s be practical. Renovation costs do play a big part in your plans too. Here are some frequently asked questions about renovation costs and financing to help you plan your budget.
I just bought my first home, a four-room HDB flat. Roughly how much can I expect to pay on renovation costs?
The average cost of renovating a four-room HDB flat is about $50,000 to $60,000. But in reality, the costs can run from reasonably low to very high, depending on factors such as whether your home is a brand-new unit or a resale, the area of your apartment, and how extensively you intend to renovate.
If your unit is brand new and comes with finishings like tiled floors, wardrobes and kitchen cabinets, it's possible to keep renovation costs lower by doing minimal work.
However, a resale unit can cost substantially more to do up. This is because older units often suffer from wear and tear that require fixing, like mouldy bathroom ceilings, cracked floor tiles or kitchen cabinets stained yellow from years of cooking. And for sure, you’ll want to replace personal hygiene fittings like toilet bowls and bathroom vanity tops.
Here are examples of how much some works will cost, assuming your four-room HDB flat has an area of 968 sq feet.
If you decide to re-do the floor of the entire flat, a very basic cement screed will cost you $3 per sq feet (psf), or $2,900 for the whole flat. But if the industrial look isn't for you and you go for homogenous tiles which cost about $12 psf upwards, retiling the entire flat will cost you $11,600 or more. Timber flooring is $16 psf upwards, costing at least $15,500 for the whole flat.
And that’s just the cost of the tiles. Hacking away the original flooring can cost you another $4,500 for an entire flat. Repainting your flat can cost $1,300 upwards. Old wires and electrical fittings might need to be replaced, and overhauling the wiring and lighting starts at $4,000.
And you still have many other costs to look into, like carpentry works for wardrobes and kitchen cabinets, retiling bathroom and kitchen walls, and perhaps knocking down walls, or building new partitions.
As you can see, the costs can add up. So you need to work out a solid budget to make sure you can handle the financial responsibility.
What are some ways I can finance my home renovation?
If you do not have a sum of ready cash to pay for your renovation costs, one way you can finance the works is to take out a renovation loan, which is offered by a few banks in Singapore like POSB, DBS and OCBC.
Under this loan, you can borrow up to $30,000 or six times your monthly income, whichever is lower, and the money can be used only for renovation costs. You can choose a repayment period of anything from 1 to 5 years.
Another way you could raise money for your renovation is to apply for a personal loan. A personal loan is a loan that gives you cash, which you can use for anything you want. It is offered by most banks and comes with a repayment term of 1 to 7 years.
You can loan up to 2 times your monthly salary if you earn between $20,000 and $30,000 a year; 4 times your monthly salary if you earn above $30,000 a year; and up to 8 to 10 times your monthly salary if you earn $120,000 or more a year with banks like DBS and HSBC.
A renovation loan can have lower interest rates than a personal loan. This is because a personal loan does not require collateral, which makes it more risky for the banks to lend the money, and they try to compensate this risk with higher interest rates.
However, from time to time, banks do run promotions on personal loans, such as lowering the interest rates, offering cashback on approved loans or waiving the processing fees. Promotions like these may make taking out a personal loan just as, or more attractive than taking out a renovation loan.
What if I can't keep to my budget when doing renovations?
Death and taxes are the two certainties of life. A third certainty is that your renovation costs are going to exceed your budget. This is because no matter how meticulous you are when drawing up the plans, there will be overlooked details, like realising you forgot to install a powerpoint in your service yard, or unexpected roadblocks, like discovering that the false ceiling installed by the previous homeowner is termite-infested.
In fact, you should expect your renovation costs to exceed your budget by about 10 percent. This could prove to be a problem if you have already used all the money from your renovation loan and you still require more money to pay the contractor. In this case, a personal loan could come in useful to top up the shortfall.
I've been saving up, but I'm a bit short of the full amount I need for renovation costs. Can I take out a loan for that?
For a renovation loan, banks like POSB, DBS and OCBC have a minimum loan amount of $5,000. If you do not need so much money, consider taking out a personal loan, which has a lower minimum amount. POSB and DBS, for example, allow for personal loans as low as $500, while many other banks have a minimum personal loan of $1,000.
Don’t loan money you don’t need and pay unnecessary interest on it; go for the lowest amount you need to borrow.
Can I take out a renovation loan for more than $30,000? I think I can afford a higher monthly repayment.
Even if you are earning truckloads of money, you can borrow a maximum of only $30,000 under a renovation loan.
Need more money than that because you are doing extensive remodelling? Consider taking out a personal loan instead. If you earn $120,000 a year or more, banks like HSBC will give you a personal loan of up to 8 times your monthly salary, which is $80,000, and POSB and DBS will loan you 10 times your monthly salary, which is $100,000. However, the final loan amount is still subject to the bank’s discretion.
Getting a higher personal loan amount will give you more leeway to achieve your vision of a dream home. On top of that, the money from a personal loan can also be used to buy furniture or home appliances.
You could also first apply for a renovation loan and then use a personal loan to make up for the shortfall for what you need.
You do need to be aware of the Total Debt Servicing Ratio (TDSR) though, which is a framework that ensures borrowers don’t overextend themselves by borrowing too much money. Under the TDSR, your total monthly debt obligations (such as your mortgage, renovation loan, personal loan, credit card bills) cannot exceed more than 60% of your monthly gross income.
If you are already servicing a house loan for your new home, the amount you can borrow under a renovation loan or a personal loan may be reduced.
What kind of works aren't covered by a renovation loan?
A renovation loan can be used only for renovation costs for these particular works:
- Electrical and wiring works
- Built-in cabinets
- Painting and redecorating works (e.g. wallpaper)
- Structural alterations
- External works within compound of the house
- Flooring and tiling
- Basic bathroom fittings
The loan cannot be used on other things such as buying furniture or household appliances. If you need extra cash to buy a refrigerator and a washing machine, or install curtains, you could take out a personal loan; the money from a personal loan can be used for anything.
But how will the bank know whether I’m using my renovation loan on renovation works or using it to buy a home entertainment system?
When you apply for a renovation loan, the bank will ask you to submit a renovation contract or a detailed quotation from a contractor. After your loan is approved, the money will be disbursed in the form of a cashier’s order to the name of the contractor’s company, thereby making sure that the money goes straight to the contractor.
The bank may also conduct site visits after disbursing the money to ensure that the loan proceeds are used for the stated renovation works as listed in the quotation. So yes, the bank knows what you are doing with the money.
On the other hand, if you take out a personal loan, you are free to do anything you want with the money.
Think you might need a personal loan for your home renovation costs? For a quick and easy way of finding the best deals, go to a comparison website like GoBear, which will search personal loans from nine major banks in Singapore, offer an unbiased comparison rating of the banks and also show you all the latest promotions in one place.
What better way to find the best personal loans in Singapore?
And there you have it, another step taken towards your dream home!