Why Is My HLE Amount So Low? (And How To Increase It)

Last updated on March 1st, 2022

If you want to take a HDB loan, you will receive a Home Loan Eligibility (HLE) letter which tells you the amount that you can borrow.

However, you may receive a huge shock when this amount is much lower than you expected!

Why is this so, and how can you increase your HLE amount?

Here’s what you need to know.

Why is my HLE amount so low?

The HLE amount that HDB is willing to lend you is based on the income that you are earning. If you are self-employed and are unable to prove that you are receiving enough income to pay back the loan, the amount that HDB is willing to lend you may be lower.

If you used the HDB Loan calculator to determine the loan amount you receive, you may receive the wrong estimate if you are self-employed.

This is because the loan estimate is based on ‘the assumption that the buyer is employed with CPF contributions‘.

Even if you are self-employed and are earning the same income, the amount that you receive may actually be lower!

It is easy for an employed person to prove their income with their CPF contributions

For an employed person with monthly CPF contributions, it is very easy to prove your income based on your CPF contribution history.

However, if you are self-employed, you do not have CPF contributions to prove your income. When you are declaring your income for tax season, you may accidentally leave out a part of your income from your declaration!

Even though the amount of income you earn as a self-employed person is similar as an employed person, the actual amount you declare could be lower.

HDB will use your declared income to determine the HLE amount they will disburse to you. If your declared income is lower, HDB will be more worried that you are unable to pay back the loan amount.

As such, the HLE amount that you receive may be lower than expected!

How is my HLE amount calculated?

The HLE amount that is disbursed by HDB depends on the income that you and the other members of your household are receiving. If you earn a higher income as a household, you will be able to receive approval for a higher HLE amount.

When you have a higher income, it gives HDB the confidence that you are able to pay back your loan amount. As such, they will be more willing to loan out a higher amount to you.

However, you’ll need to ensure that your total household income is below HDB’s income ceiling!

You may need to calculate your household’s income to ensure that you are below this ceiling before applying for a HDB loan.

Will my credit score affect HLE?

Your credit score will affect your HLE amount if you are are self-employed. One of the income documents you are required to submit is your Credit Bureau Report, which HDB will use to determine your HLE amount.

HDB uses your Credit Bureau Report as a factor to determine your financial stability if you are:

1. Self-employed
2. Employed without monthly CPF contributions

In contrast, employed persons with CPF contributions do not need to submit their Credit Bureau Report!

If you do not have a ‘stable income’, HDB wants to be very sure of your financial stability before they disburse you a certain loan amount.

One of these ways is by making sure that you have a good credit score, which shows that you are able to pay your bills promptly!

How can I increase my HLE?

Here are 5 methods you can use to increase your HLE amount:

1. Ensure that your bank statements have a positive cash flow
2. Ensure that you are declaring your income accurately to IRAS
3. Ensure that you are not exceeding the Total Debt Servicing Ratio (TDSR)
4. Ensure that you have a good credit score
5. Consider switching to a job with CPF contributions

Here is each strategy explained:

#1 Ensure that your bank statements have a positive cash flow

If you are self-employed, you will need to submit your bank statements for the past 6 months.

HDB is looking out for a positive cash flow into your bank accounts, so that you are saving the income that you earn.

This means that the amount that goes into your bank account (income) has to be greater than what goes out (your expenses).

If you can prove that you have net savings in your account, it gives HDB greater reassurance that you are financially stable.

There are some things you can do to ensure a positive cashflow into your bank account, such as:

1. Crediting your income into a bank account
2. Reducing your expenses

You can try out the 9 steps that I am planning to use to reach $100k in savings too.

#2 Ensure that you are declaring your income accurately to IRAS

Another income document that you need to submit to HDB as a self-employed person is your Notice of Assessment by IRAS.

This will indicate the income tax you are paying, based on the income that you have declared.

You will want to ensure that you are declaring your income accurately, as HDB uses this document to determine the income that you are receiving.

This is because you cannot prove your income based on CPF contributions, which an employed person is able to do so!

If you under-declare your income, HDB will only be willing to disburse a lower HLE amount based on your declared income!

#3 Ensure that you are not exceeding the Total Debt Servicing Ratio (TDSR)

When you are taking a loan, you will need to take note of the Total Debt Servicing Ratio (TDSR)

Total debt servicing ratio (TDSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for.

MAS

To be eligible for a loan, your TDSR has to be less than 60%.

You may already have other loans, such as:

1. Car loan
2. Student loan
3. Credit card loan

If you need to pay a significant portion of your monthly income for these loans, you can only borrow the remainder for your housing loan.

For example, you may be earning $5,000 a month and you are repaying $2,000 in loans.

You are only allowed to make a maximum repayment of $1,000 per month for your housing loan.

If your TDSR is already high, it may limit the amount that you can repay each month for your housing loan.

Ultimately, this will affect the total loan value that you will receive in your HLE!

#4 Ensure that you have a good credit score

Having a good credit score helps to assure HDB that you are financially stable. One way to maintain a good credit score is by always paying your credit card bills in full!

When you credit score is low, this means that you have a higher chance of defaulting a loan.

As such, HDB would not want to disburse a high HLE amount if you have a low credit score!

You may want to ensure that your credit score remains in good standing before applying for the HLE.

#5 Consider getting a job with CPF contributions

This is quite an extreme strategy, and it should only be done as a last resort.

If you are employed with CPF contributions, you will tend to receive a higher HLE amount.

This is because you are receiving a regular salary, and HDB will be able to better estimate your chances of paying back the loan amount.

As such, you may want to consider applying for a full-time job, especially if your business is not giving you a steady flow of income.

In this way, you are able to show HDB that you are able to have a steady income source. They may be more willing to disburse a higher HLE amount for you!

Conclusion

If you are receiving a lower than expected loan value in your HLE, it could mean that HDB is not willing to lend a larger amount to you.

The calculator on HDB’s website is accurate for employed people with CPF contributions. As such, the estimated amount you receive may be lower too!

If you are self-employed, it could mean a few things:

1. Your income could have been under-declared
2. You have a lower credit score
3. You do not have positive cashflow in your bank statements
4. Your TDSR is already rather high before taking the HDB loan

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