Buying a property: How much can you afford
Buy a property within your means. Take stock of all your resources to see what you can afford and how much you can borrow, and get to know the differences between HDB loans and bank loans.
Key takeaways
*Choose a home based on what you can afford in terms of upfront and ongoing payments.
*If you are buying an HDB flat, you may qualify for an HDB loan.
*How much you can borrow will depend on your lender’s assessment and rules such as the total debt servicing ratio (TDSR) and loan-to-value (LTV) limit.
What can you afford?
Buying a home is a huge milestone and a long-term financial commitment. So make sure you buy a home that you can afford in the long run. You’ll need to have enough resources to pay for upfront costs, ongoing homeownership expenses and monthly loan instalments.
Upfront costs
These include the option fee, downpayment, stamp duty, legal cost, agent’s commission and fees, renovation and other miscellaneous costs.
Ongoing expenses
There are some ongoing expenses which cannot be paid with your CPF savings. You’ll need to set aside enough money for:
Monthly expenses (property taxes, fire and mortgage insurance, conservancy and management service fees). Future interest rate hikes if you’re taking up a floating rate loan. Possible drop in property value and the original LTV ratio is exceeded. You may have to dip into your savings if you’re not prepared.
Monthly loan instalments
A home loan is usually repaid in monthly instalments. Each monthly instalment consists of a principal repayment and interest payment.
The size of your monthly instalment depends on how much you have borrowed, the loan tenure, the interest rate of the loan and how interest is computed.
Things to note:
*For the same amount of money borrowed, a longer loan tenure means your monthly payment is smaller but your total interest paid is higher.
*Take note of the cap on the amount you can use from your CPF savings for your home loan.
*Ask your lender for a repayment schedule.
How much do you have now?
Take a look at what you currently have. Do you have enough money to see you through all the costs involved in buying a home?
Your available resources could come from your:
*Cash savings (to meet upfront payments and keep up with repayments in case of income loss)
*CPF Ordinary Account savings
*Sales proceeds (net of outstanding loan) from your current home, if any
*Income. Do you have a steady income or is it commission-based and dependent on other factors?
How much can you borrow?
HDB and the lenders will assess how much you can borrow for a home loan in the following ways:
Mortgage servicing ratio (MSR)
MSR indicates the proportion of your gross monthly income that is used to service your mortgage.
MSR= Monthly mortgage repayment/Gross monthly income
Your monthly HDB or Executive Condominium (EC) loan installment must not exceed 30% of your gross monthly income. This applies if you are buying a HDB flat, or EC where the minimum occupation period of the EC has not expired.
Total debt servicing ratio (TDSR)
TDSR indicates the proportion of your gross monthly income used to service all your monthly debt repayments. If you are taking a loan to buy a property, you will need to meet the TDSR rules.
TDSR=Total monthly debt payments / Gross monthly income
Your total monthly debt commitments (e.g. mortgage payments, car payments and credit card payments) should not exceed the TDSR threshold of 55%. You may find out more about how the TDSR is computed here.
Loan-to-value limits The loan-to-value(LTV) limit determines the maximum amount you can borrow for a housing loan.
LTV= Loan amount/ Property value
Lenders will consider the following before granting the LTV:
*All existing loans and credit facilities
*Tenure of the loan
*Monthly repayment instalment as a proportion of gross monthly income
*Any discount, rebate or other benefits given
The LTV limits for individuals change depending on the number of outstanding housing loans a borrower has. For bank loans on residential properties, the following LTV limits apply:
| Outstanding housing loans | LTV limit | Minimum cash downpayment |
|---|---|---|
| None | 75% or 55% | 5% (for LTV of 75%) , 10%(for LTV of 55%) |
| 1 | 45% or 25% | 25% |
| 2 or more | 35% or 15% | 25% |
Apply the lowest LTV limit if the loan tenure exceeds 30 years (or 25 years for HDB flats), or the loan period extends beyond the borrower’s age of 65 years.
Getting an HDB loan
If you are buying an HDB flat, you may qualify for a loan from the HDB. With an HDB loan, you may borrow up to 85% of the purchase price or the property’s valuation price. This depends on which is lower, subject to HDB’s credit assessment.
The amount of HDB loan granted depends on:
*The buyer’s age
*Monthly income
*Financial standing
Are you eligible?
To find out if you are eligible for an HDB loan and the maximum amount you can borrow, you will need to apply for an HDB Loan Eligibility (HLE) letter
The HLE helps you plan for your home purchase by giving you information on how much you can borrow, the monthly repayments, the amount of cash you need and other terms and conditions.
Note: An HDB loan comes with certain eligibility criteria such as an income ceiling. Check if you qualify.
HDB loan versus bank loan
If you’re choosing between an HDB loan and bank loan for financing your HDB flat, the key differences to consider include the downpayment, interest rate and flexibility to pay off your loan early.
Compare the two loan types below:
| Home Loan | Bank Loan | |
|---|---|---|
| LTV Limit | Up to 80% | Up to 70% |
| Downpayment | 15% Upfront | Depends on number of property loans you have. Refer to the table above. |
| Mortgage servicing ratio | 30% | 30% |
| Total debt servicing ratio | N.A | 55% |
| Interest Rates | Pegged at 0.1% above the prevailing CPF interest rate & reviewed quarterly | Fixed/Floating |
| Maximum Loan Period | Up to 25 years | Up to 30 years for HDB flat and 35 years for private property |
| Loan Switch | Can switch to bank loan | Cannot switch to HDB Loan |
| Chargeable Fees | No penalty for early repayment | May incur fees for *Early repayment and/or *Refinancing within lock-in period |
Find out more: About Housing Loans: Key Questions to Ask Your Bank Before Taking a Housing Loan