When applying for a home loan, buyers often assume that income alone determines approval. But banks look far deeper. They want stability, predictability, and consistency — especially because a housing loan is a long-term commitment that can last 20 to 30 years.
This is why the way banks assess employed borrowers is different from how they assess self-employed individuals.
In this guide, we break down how both groups are evaluated, why banks prefer certain income types, and what you can do to improve your loan eligibility.
Why Stability Matters to Banks
A home loan is one of the largest loans an individual can take. From a bank’s perspective, the question is simple:
“How likely are you to repay your monthly instalments on time — every month, for the next 20+ years?”
Because of this, banks prioritise:
- Consistent income
- Predictable cash flow
- Low default risk
Borrowers with stable income sources are considered more reliable, which affects:
- Loan approval
- Loan amount
- Interest rates offered
Let’s break down how this works for two different groups.
How Banks Assess Employed Borrowers
If you are employed with a regular salary, especially in a large organisation or government agency, you are considered a low-risk borrower.
Why Banks Favour Employed Applicants
Banks place high confidence in employees because:
- Monthly salary is predictable
- Companies (especially MNCs & government bodies) are stable
- Risk of sudden income loss is lower
This makes employed individuals the bank’s preferred borrower profile.
Key Factors Banks Look At for Employed People
1. Job Stability
Banks check:
- How long you’ve been with your current employer
- Employment history
- Whether your employer is stable
A longer tenure signals reliability.
2. Income Recognition
Banks typically recognise:
- 100% of your fixed monthly salary
- 70% of your bonus
Why only 70% for bonus?
Because bonuses are variable. Banks apply a haircut to ensure borrowers remain prudent.
Example: Bonus Calculation
If your annual bonus is $10,000:
Recognised amount = $7,000
This protects banks from overestimating your income.
3. MSR and TDSR Still Apply
Whether buying an HDB, EC, or private property, employed borrowers must still pass:
- TDSR (55% limit)
- MSR (30% limit for HDB/EC)
These ratios determine your maximum loan amount.
How Banks Assess Self-Employed Borrowers
The assessment becomes very different for those who are self-employed.
According to IRAS, you are self-employed if you perform work under a contract for service, including:
- Hawkers
- Taxi / private-hire drivers
- Freelancers
- Insurance agents
- Real estate agents
- Home-based business owners
- Tutors
- Musicians / performers
- Independent service providers
Why Banks Are More Cautious With Self-Employed Applicants
Self-employed income is often:
- Variable
- Seasonal
- Dependent on market conditions
- Influenced by client demand
For banks, this introduces greater uncertainty.
Key Factors Banks Look At for Self-Employed People
1. Income Stability (or Variability)
Since income may fluctuate month to month, banks want to ensure borrowers can consistently meet their monthly instalments even during “dry months”.
2. 70% Income Haircut
For self-employed borrowers:
➡ Banks recognise only 70% of your income.
This is to account for income fluctuations.
So if a self-employed person earns $10,000/month, banks will use $7,000 for loan calculations.
3. Greater Emphasis on Notice of Assessment (NOA)
Banks review your last 2 years of IRAS NOA to determine:
- Average income
- Stability of earnings
- Year-on-year consistency
This helps them manage their risk exposure.
4. TDSR & MSR Still Apply
Self-employed borrowers must also pass:
- TDSR (55% cap)
- MSR (30% cap) if buying HDB/EC
Because of the income haircut, self-employed applicants generally qualify for lower loan amounts.
Which Profile Has an Easier Time Getting a Home Loan?
✔ Employed borrowers (especially those with stable employers)
These individuals enjoy:
- Higher income recognition
- Lower perceived risk
- Higher loan quantum
- Faster and smoother loan approvals
✘ Self-employed borrowers
These individuals face:
- Income haircut
- Stricter scrutiny
- Higher documentary requirements
- Lower maximum loan amounts
This is simply because banks need stronger risk mitigation when income is volatile.
A Personal Insight from a Realtor’s Perspective
As a realtor in Singapore, I am also categorised as self-employed.
This means:
- My income is subject to the same 70% haircut
- My loan eligibility depends heavily on my NOA
- Banks evaluate my last 2 years’ earnings carefully
If you are self-employed like me, it’s important to plan ahead — especially if you’re aiming to upgrade or invest.
Understand How Banks Assess Income Before Applying for a Home Loan
Whether employed or self-employed, the most important thing is understanding how banks view your income stability.
Banks prioritise:
✔ Predictability
✔ Consistency
✔ Risk management
✔ Financial discipline
By knowing how your income is assessed, you can better prepare for approval and maximise your loan eligibility.
Need help assessing how much you can borrow?
Whether you’re an employee or self-employed, I can help you understand your affordability clearly and accurately.
📞 Reach out to me, Libin from Instyle Homes Singapore, for a friendly, non-obligatory chat today! 😊
