This article was first published on 23 June 2017 and has been updated with new information.
Buying a home is one of the biggest and most important financial decisions we have to make in our lives. In addition to paying for a home in the 3rd most expensive property market in Asia and 6th in the world, purchasing a house will require us to take up a home loan that will likely stretch for the next 20 to 30 years of our lives.
This is why we need to be very mindful when it comes to working out our sums to ensure affordability in the long term when it comes to choosing a home. Of course, as people progress in their career and have a higher earning power, many may consider upgrading to homes to a posher area, bigger floorspace or near better amenities. This usually comes with a hefty price tag and extending your home loan repayment by many years requires careful planning.
To make it easier for you, we crunched the numbers to provide an approximate salary you and your spouse should be earning before you consider buying a certain type of property in Singapore. This is primarily focused on your ability to keep up with your mortgage payments.
This is also an approximation, and you should crunch your own figures to ensure you can afford the home you are intending to buy.
How Much Do I Need To Earn To Be Able To Pay My Monthly Mortgage?
Before we get into the actual number, here are some of the assumptions we used to facilitate our calculations in this segment.
- Down payment: 10% of property price (HDB homes) 25% of property price (private homes)
- Loan tenure: 25 years
- Interest rate: 2.6% (public homes); 2.0% (private homes)
- We assume that buyers do not get any government grants for Housing & Development Board (HDB) flats.
- We assume that private property owners do not have any other loans to service.
- For simplicity, we assume both husband and wife earns the same salary.
We also have to take into account MSR (Mortgage Service Ratio) for HDB flats and executive condominiums bought directly from developers, stipulating that owners are only allowed to pay back a maximum of 30% of their gross total income. For private property owners, they have to comply to the TDSR (Total Debt Servicing Ratio), where they can only pay back up to 60% of their gross total income. For TDSR, this includes all other loans such as personal, car or even student loans.
In the table below, we look at common property types, both public and private, to calculate the salary you need to earn to be able to afford these homes.
*Outside Central Region (OCR); Rest of Central Region (RCR); Core Central Region (CCR)
Just to explain how we arrived at the average housing price, we used public sources on HDB for the median resale prices of HDB flats in the 3rd quarter of 2019, on URA for resale prices of executive condominiums, condominiums, terrace houses, semi-detached houses and bungalows, and used figures quoted on a PropertyGuru article for average selling prices of GCBs (good class bungalows) for the first half to 2019.
For those seeking to buy HDB flats, these are resale prices and do not include any government grants couples may be eligible for. For a complete guide to HDB housing grants you may be eligible for in Singapore, you can read this article.
From this, we can also see that a couple buying a condominium outside central regions (OCR) may only need to earn $4,063 each while another couple buying an EC (executive condominium) will have to be earning close to $5,764 each. As in all assumptions, there may be anomalies, for this to actually be the case, the couple buying the condominium in question cannot have any other loans, to be able to allocate all 60% of their gross total income towards only their home loan. This is unlikely to be the case for many couples.
Another thing to note is that these calculations do not include other costs that are usually associated with buying a home including repairs, renovations or furniture. This is also limited by a 25-year mortgage – those who are older may not be able to qualify for such long loans that exceed the retirement age of 65 and those younger can extend their loan tenure by refinancing their home loans.
To be able to purchase a good class bungalow, or even other types of landed properties, such buyers will likely not be leveraging up to 60% of their salaries to afford their home. Typically, with the ability to afford such a price tag, comes with being able to also afford many other things in their lives as well. What this means is that the average salary per spouse listed above is likely to be a gross underestimation of how much couples that buy landed properties and good class bungalows are earning in actuality.
Don’t Put All Your Money Into Your Home
It is a dangerous game to overextend yourself to afford a pricier home. The government has done its part by introducing the MSR and TDSR, as well as various other property cooling measures. On our part, we should not simply take on the maximum amount of debt we can just because we are allowed to do it.
Further, by locking our money in a home, we may be unable to invest for our future retirement or enjoy life – going on holidays, splurging on indulgences or buying new gadgets. Instead, if we stretch ourselves to afford the most expensive home we can buy, we will likely be living an extremely stressful lifestyle where going out of work or getting sick may spell financial disaster for our family.
This is how we can unintentionally veer into ending up asset rich but cash poor.
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