Do your calculation before you start shortlisting and viewing properties. Read on this article to learn how to do budgeting before buying a private property. Case study will be given to guide you on how to do calculation.
#1 Decide buy as sole owner or joint owner (joint tenancy or tenant in common)
It will affect the qualified loan amount, CPF fund usage. For example, if buy under husband's name, then only husband can use his income to apply loan and deduct CPF OA fund from husband's CPF account.
#2 55% TDSR (Total Debt Servicing Ratio)
Total debt servicing ratio (TDSR) refers to the portion of a borrower's gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for. A borrower's TDSR should be less than or equal to 55%. (from MAS website)
For example, if you are earning $10,000 fixed salary, you can only use 55% of the income to pay off housing loan, personal loan, credit card loan, car loan, expenses on monthly installment and etc. If you don't have any debt, you can use TDSR $5,500 to assess how much maximum loan you are qualified.
#3 CPF fund Usage & Cash for Monthly Mortgage
After find out how much maximum loan you are qualified, you can ask yourself how much you are comfortable to use cash to pay off your monthly mortgage. If you are employed, your employer will contribute CPF to your CPF account. According to the CPF allocation rates, if you are 35 year old and below, fixed salary is $10,000 (capped at $6,000), you will have 23% of your salary ($6000 x 23% = $1380 ) go to your CPF OA every month.
If your monthly mortgage is $3000, you have the option to use $1380 from CPF, plus $1620 by cash.
#4 Bank loan
Make sure you talk to banker or broker to learn about the home loan interest. Understand the loan package before you confirm the application, it will help you to save $$$.
Decide the loan tenure you want to get, max. 30 year or pay off mortgage till you are 65 year old. During the assessment, Bank will use 3.5% interest rate as median interest rate (required by MAS). Loan amount can be varied, it's depends on your credit score as well. Make sure you get bank loan IPA (In Principle Approval) before you make offer/pay option fee to get OTP (Option To Purchase). Loan-To-Value
#5 Maintenance Fee
Don't forget to factor in the maintenance fee that need to be paid by cash quarterly. Typically, a 3 bedder condo in OCR (Outside Central Region) maintenance fee is at the range of $250-$350 per month. It's varied and depends on the condo development size, location, share value and etc.
#6 Buyer Stamp Duties / Additional Buyer Stamp Duties
Buyer Stamp Duties are required for every property purchase. ABSD is depends on your residential status and number of residential properties you are holding.
Under the respective FTAs, Nationals or Permanent Residents of the following countries will be accorded the same Stamp Duty treatment as Singapore Citizens:
Nationals and Permanent Residents of Iceland, Liechtenstein, Norway or Switzerland
Nationals of the United States of America
For more info, please refer to IRAS website https://www.iras.gov.sg/taxes/stamp-duty/for-property/appeals-refunds-reliefs-and-remissions/common-stamp-duty-remissions-and-reliefs-for-property/foreigners-eligible-for-absd-remission-under-free-trade-agreements-(ftas)
#7 Yearly Property Tax
It's depends on the Annual Value of your property. Owner Occupied or Non-Owner occupied. If you are buying for own stay, it will be under Owner Occupier Tax.
For full property tax table, please refer to Gov website.
#8 Home Insurance & Mortgage Insurance
Please make sure you have home insurance & mortgage insurance.
For instance, an unexpected circumstances might cause that your family will have to take over from you the duty of paying the outstanding mortgage. This can add to the family’s financial burden, especially as mortgage is usually a huge financial commitment.
Do note that if the family is unable to continue servicing the loan, the home might potentially be foreclosed. To avoid any undesirable situation, do consider getting adequate mortgage insurance to ensure that the family is financially protected, regardless of what happens.
#9 Reserved Fund
It's just a piece of golden advice for every homeowner. In the event of loss of income, not able to pay mortgage on time will cause your home be foreclosed. I would suggest that every homeowner prepare reserved fund to cover at least 12 months monthly instalment, maintenance fee and property tax. Do consider that in case you need to sell your home, it might take up to a few months (at least 2.5 months for the whole transaction process).
#10 Renovation & Repair Cost
I guess you and your family have their own taste, set aside fund for renovation cost.
Buy property with "not-so-good" conditions, you might even need to fork out more money to do repair. For example, water piping issue, mold issue, leaking ceiling and so on.
Case Study: Husband & wife buying their first resale condo
Mr Husband, Singapore Citizen, 32 year old, fixed salary $5000 per month
Mrs Wife, Singapore Citizen, 32 year old, fixed salary $5000 per month
Total combined income: $10,000
TDSR 55%: $5500 - car loan $800 = $4700
30 year loan tenure
Median Interest Rate
Estimated qualified loan amount: $1,046,666
If you are planning to buy a property, feel free to talk to me to discuss to do a financial calculation and budget planning.
*Disclaimer: This article is for reference purpose only. Please talk to me directly if you like to know more.