How Much Can You Afford When Buying a Property

Calculate Your Affordability When Buying a Property

Singapore is a country where for most people buying a property or a house for themselves is a huge milestone. Hence, year after year, most people strive to save up and apply for bank loans to buy a property.

However, buying a property is not only about finding your dream house; you need to ensure you can afford the property you like. Contrary to popular belief, affordability is not only about finding a property in your comfortable price range. You also need to ensure you meet the legal requirement set by authorities, even if you think you can afford the price upfront. And if you can’t do that, then being eligible for property loans is another story.

Therefore, today we decided to discuss affordability considering your stocks and resources, along with how much you can afford to borrow through bank or HDB loans.

See How Much You Can Afford

Buying a house is a long-term commitment, so you must make sure you can manage your finances in the long run.

Money You Will Have to Pay

The Upfront Cost

This is the cost that you are required to pay right away. The upfront cost includes:

  • Down payment (which is usually between 5% and 10% of purchase price).
  • Legal cost.
  • Option fee (usually 1% of PP) & Option Exercised Fee (which can range between 5% and 10%).
  • Stamp duty.
  • Agent’s fee and commission.

The Ongoing Expenses

These are the ongoing expenses that you will need to take care of – these cannot be paid through your Central Provident Fund account, and if you are not prepared, you might have to take help from your savings. These include:

  • Monthly expenses such as property taxes, management services fees, mortgage insurance, and conservancy.
  • Considering the possible plunge in property value and exceeding the original LTV ratio.
  • Hike in future interest rate considering a floating rate loan.

The Monthly Loan Installments

Like most people, if you can’t afford to pay for your property, you will have to take a loan – and loans are paid in monthly installments. The number of your monthly installments depends on a few things, including:

  • the amount you have borrowed.
  • the interest rate.
  • the loan tenure.

Keep in mind that if you opt for a longer tenure to pay off your loan, your monthly installments will be the same, but you will be paying higher interest in the long run. However, it will be the opposite for the same amount of loan.

Money You Have Already

Once you know where you will need to pay money, it’s time to see how much money you      already have in your bank account. Look at all your resources, such as:

  • CPF Ordinary Account savings.
  • Cash Savings (if you have any) to meet your upfront payments.
  • Proceeds from sale of your current property, if any.
  • Employment &/or Trade Income, which includes passive income from equity and property investments.
  • Quantum of Housing Loan available.

If you want to borrow money, the HDB (Housing & Development Board) and the lender will evaluate how much you can loan for a home. This will depend on:

  • Loan-to-Value (LTV) Limit – to calculate how much you can borrow.
  • Mortgage Servicing Ratio (MSR) – part of gross monthly income to service mortgage.
  • Total Debt Servicing Ration (TDSR) – the proportion of your monthly income to service monthly repayments.

HBD vs. Bank Loans

If you are confused in choosing between HDB or bank loans to finance your property, here are the key differences to help you decide:

  • The LTV limit for HDB loans is 85%, while for Bank loans are, 75%.
  • HDB allows remaining 15% payment to be paid in full using CPF but Bank loans requires at least a minimum 5% payment to be paid in cash.
  • Both have the same mortgage servicing ratio (30%).
  • The maximum loan period for HBD is 25 years, while for bank loans is 30 to 35 years.
  • You can always switch to a bank loan from an HDB loan but not the vice-versa.

Do Your Calculations

To check your eligibility and the amount you can borrow for HDB loans, you need to apply for an HDB Loan Eligibility (HLE) letter. Other than that, if you are planning to buy a property, tis about time you have a look at your stocks and resources, stabilize your income and apply for a loan! Hope this guide for helpful!

Why Choose ValueMax?

As we said earlier, a mortgage can be an overwhelming process, and without proper knowledge of the basics of a mortgage in Singapore, you can find it fairly difficult to find a good deal. However, we at  ValueMax (VM Credit Pte Ltd) are here to help you.

We offer clients easy mortgage loan agreements that only require minimal documentation and real estate for the approval of loan. Our loan terms are highly flexible, and we guarantee to approve loans within a week.

We also make sure that loan disbursement is done within the 3 weeks from acceptance of our loan contract, and guess what? There is no hidden fee! We provide a high level of transparency with our lawyers, who handle all the necessary documentation. Since our loans are privately funded, we are devoted to providing quick and efficient service.

So what are you waiting for? Avoid foreclosure and restructure your debt now!

Learn more about VM credit

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