Borrowing money for down payment, is it worth it?
It is not uncommon to find it difficult to own a property in Hong Kong. Many working-class individuals work overtime and learn about investments just to “get on the property ladder.” Starting something new is always difficult, so why not borrow money for the down payment and get through the first hurdle? However, before taking action, it is important to consider whether this move is worth it or foolish.
- Loan records affect the loan-to-value ratio for mortgages.
Firstly, both the Hong Kong Monetary Authority and banks have regulations stating that private loans cannot be used as a down payment, and borrowers must declare the source of their down payment when applying for a mortgage. Do not try to evade or deliberately conceal the fact that the down payment comes from a loan, as making false statements in a loan application could result in criminal charges.
Secondly, the conditions for applying for a 90% loan-to-value ratio mortgage are strict. In addition to having a strong income tax return as the strongest supporting document, “credit rating” is also one of the key factors. For banks, everyone has a “borrowing limit,” and once it’s reached, it’s impossible to borrow more. Banks can easily see a borrower’s private loan, credit card, and regular payment records, and any outstanding loan records, delinquencies, or missed payments can negatively affect the credit rating. Even if the borrower can afford it, they may not be able to borrow, as private loans have already taken up part of the “borrowing limit,” making it difficult to obtain a high loan-to-value ratio mortgage.
- Manage regular payments appropriately
In addition to the basic requirements of paying off credit card debt and repaying loans, regular expenses also affect the ability to pass the stress test. For example, phone bills, which are monthly payments under a long-term contract, are also included as one of the regular expenses. It’s important to minimize regular expenses, but not to the point where even phone bills are cut. Instead, before committing to long-term investment or insurance plans, seek advice from an accountant and carefully review the monthly bills for the past three months. If it could affect the loan-to-value ratio, consider delaying the plan.
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