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 that is within the top five to 10 most expensive real estate markets in the world, we will very likely have to take up a home loan that will 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 we should buy. Of course, as people progress in their career and have a higher earning power, many may consider upgrading to homes in posher areas, with bigger floorspace or near better amenities. This usually also comes with a hefty price tag that 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, of course, is primarily focused on your ability to keep up with your mortgage payments.
How Much Do I Need To Earn To Be Able To Pay My Monthly Mortgage?
First of all, we’ll get some of the assumptions out of the way to facilitate our calculations in this segment.
- Down payment: 10% of property price (HDB homes) 20% of property price (private homes)
- Loan tenure: 25 years
- Interest rate: 2.6% (HDB homes); 1.5% (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, 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 HDB and private, to calculate the salary you need to be earning 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 first quarter of 2017, on URA for resale prices of executive condominiums, condominiums, terrace houses, semi-detached houses and bungalows, and used a figure quoted on Business Times for average selling prices of GCBs (good class bungalows) for 2016.
Firstly, for HDB flats, these are resale prices and do not include any government grants couples may be eligible for. To get a better understanding of buying from the government, with grants, you can refer to this article.
From this, we can also see that someone buying a condominium outside central regions may only need to earn $3,667 each while another couple buying an EC (executive condominium) will have to be earning close to $5,562 each. As in all assumption, 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.
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 this to up to 30 years.
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. On your part, you should not take on the maximum amount of debt you can just because you are allowed to do it.
Further, by locking your money in your home, you may be unable to invest your money for your future or enjoy life – going on holidays, splurging on indulgences or buying new gadgets. Instead you will likely be living a stressful lifestyle where going out of work or getting sick may spell financial disaster for your family.
This is how many Singaporean families veer into ending up asset rich but cash poor.
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