Buying a property is a big decision, whether for your own stay or adding to your investment portfolio. It is important to be mindful of working out your sums on your affordability in choosing your home or property investment. Most people will need to take up a loan, which means a commitment for the next 20-30 years.
Your affordability is affected by your maximum loan amount based on your property value and several MAS requirements, total downpayment available, and initial fees.
Your maximum loan amount is based on the following factors:
- Loan-to-Value ratio
- Total Debt Servicing Ratio (TDSR)
- Mortgage Servicing Ratio (MSR)
These ratios affect the maximum loan quantum banks can approve based on your monthly gross income.
What can be considered in Gross Monthly Income?
- 100% of monthly fixed income
- 70% of monthly variable income (e.g., allowance, commission, bonus, etc.)
- Financial assets, like bank deposits, unit trusts, bonds, or gold, can be pledged with the bank for 4 years.
For joint-ownership, the calculation is based on combined income and combined debt obligations.
Loan-to-Value Limits (LTV)
The loan-to-value (LTV) limit determines the maximum amount buyer can borrow for a housing loan from HDB and banks, hence, how much downpayment you need to pay upfront in cash and/or CPF Ordinary Account (CPF-OA). It applies as long as you take out a home loan to finance your property purchase, whether it is your first, second, or more mortgage.
LTV = Loan amount / Property value
For instance, an LTV ratio of 90% means that you can borrow up to 90% of your property value (or purchase price, whichever is lower).
Note that new launches, e.g., new HDB flats (BTOs), new executive condos, new launch condominiums, the LTV ratio, will always take reference from the purchase price. If you buy a resale property and pay more than the amount of its HDB/bank valuation, that Cash Over Value (COV) amount must be paid in cash. For example, if you pay $530,000 for a property valued at $500,000, the LTV will apply to $500,000 (the valuation), and you must pay the $30,000 in cash.
The HDB housing loan, which is only available for new BTO/resale flat purchases, will have a maximum LTV ratio of 90%. This means you can loan up to 90% of the purchase price/property value and have to pay at 10% in downpayment. The downpayment can be paid by cash, from available savings in your CPF Ordinary Account, or a mix of both. There is no minimum cash component. Since Singaporeans can only own one HDB flat at any given time, this is the only LTV you need to know.
The maximum LTV ratio is not guaranteed as other factors can lower your LTV:-
1. Outstanding home loan(s)
If you already have one outstanding home loan, the LTV of your second home loan is capped at 45%. This means the remaining 55% downpayment, 25% to be paid in cash, and the remainder can be paid in cash or your CPF OA.
If you already have two outstanding home loans or more, the LTV ratio is capped at 35%.
For bank loan, the LTV limit depending on the number of outstanding housing loans a borrower has. The following LTV limits apply:
|Outstanding Housing Loans||LTV Limit||Minimum Cash Downpayment|
|5% (for LTV of 75%)|
10% (for LTV of 55%)
|1||45% or 25%||25%|
|2 or more||35% or 15%||25%|
2. The remaining lease on the property
For properties with a lease that is 35 years or less, home loans are usually not possible. Moreover, you cannot use your CPF funds for properties with 30 years or fewer on the lease.
For properties that only have 36 to 40 years left on the lease, the maximum LTV is often capped at 60%. However, you can still pay up to 15% of the property price or value (whichever is lower) with your CPF funds.
3. State of the property
LTV ratio will always take reference from the purchase price. Hence, be careful in purchasing a very old, rundown property as it may affect the purchase price and LTV.
4. Your age and loan tenure
With a loan tenure exceed 30 years, the LTV for private properties will be capped at 55% or if the loan tenure plus your age extends beyond 65. This means, if you take up a bank loan for 35 years, you will need to make sure you repay the full loan before you turn 65 years old to enjoy a higher LTV of 75%
For an HDB flat, the LTV will be capped at 55% if the loan tenure exceeds 25 years or if the loan tenure plus your age extends beyond 65.
5. Your credit score
Banks use credit ratings. Banks and financial institutions use a credit rating to evaluate you as a risk. You need to have a good rating, and to prevent this, be sure to repay any loans on time. If you have a history of late or non-payment on loans or if your credit grade is CC or below, your loan application may be rejected completely as you could be identified as a credit risk. This will may lower your LTV than the allowable limit.
For Singapore, you will be denied a loan if you have a bad rating. You can obtain a copy of your credit report from the Credit Bureau of Singapore (CBS) for an administration fee of around S$6.50.
Total Debt Servicing Ratio (TDSR)
For private properties and resale executive condominiums, the home loan, together with all existing debt obligations – cannot exceed 60% of the sole borrower’s gross monthly income.
Monthly Total Debt Obligations
Gross Monthly Income (excl. CPF Contribution by Employer)
Monthly debt includes all outstanding debt obligations:
- Property-related loans, including the loan being applied for.
- Car loans.
- Student loans.
- Renovation loans.
- Credit card loans.
- Any other secured or unsecured loans, including revolving loans.
*Note: Expenses like groceries, utilities, gas, and your taxes generally are not included.
Some factors can affect your TDSR:-
- Salary components (fixed income or variable income)
- Monthly loan commitments
- Loan period
Buyers can enjoy a 100% total income assessment for TDSR if they receive a fixed salary. If buyers are self-employed or with variable income, only 70% of their total assessed income is considered for TDSR.
Buyer A employed with a fixed salary of $60,000 a year.
TDSR = (60% x $60,000)/12 = $3,000 per month
Likewise, a self-employed Buyer B earns $60,000 a year. Only 70% of $60,000 is counted; this means $42,000.
TDSR (60% x $42,000)/12 = $2,100 per month
This means Buyer A with a fixed salary will have $3,000 for debt repayment, while Buyer B with variable income will have $2,100 a month to repay the debt.
Generally, a home loan applicant with variable income can only get 70% of the loan amount that an applicant with fixed income can, under the TDSR framework.
TDSR means that the portion of the buyer’s gross monthly income that is used to service monthly debt payments cannot exceed 60%. The debt payments refer to all debts, including stuff like credit card payments, car instalments, study loans, besides the home loan. So now, using the same example and factor in other loan commitments.
Buyer A has a credit card repayment of $500, and this will mean Buyer A can use $2,500 (TDSR $3,000 – Credit Loan $500) to service the housing loan repayment. Buyer B has no other loans, will still have $2,100 to repay the housing loan repayment.
Mortgage Service Ratio (MSR)
If you are buying a HDB flat (both brand new and resale) or a new Executive Condominium, you have an additional criteria to look out for other than the TDSR – Mortgage Servicing Ratio (MSR).
An executive condominium that has already been privatized (after 5 years Minimum Occupation Period – MOP) there is no MSR; instead, it subjects to TDSR because TDSR is applicable for private property. For brand ECs and HDB flats, the loan repayments cannot exceed 30% of the sole borrower’s gross monthly income.
Monthly Total Mortgage Repayment
Gross Monthly Income (excl. CPF Contribution By Employer)
For the same cases, if Buyer A decides to buy an HDB flat and is employed with a fixed salary of $60,000 a year.
MSR = (30% x $60,000)/12 = $1,500 per month
And if Buyer A has a credit loan repayment of $500, Buyer A can only use $1,000 (MSR $1,500 – Credit Loan $500).
Likewise, a self-employed Buyer B earns $60,000 a year. Only 70% of salary is counted, this means $42,000.
MSR = (30% x $42,000)/12 = $1,050 per month
If you cannot meet the MSR, you can:-
- Increase the loan tenure to reduce monthly repayments
- Make a bigger down payment
- Clear the existing loans
- Find some way to raise your assessed income (any side income like a rental, part-time job, etc.)
- Buy a smaller unit
Maximum Loan Quantum
Home loans in Singapore are subjected to interest rates. As the interest rates are always changing, banks will not use the current interest rate to calculate the home loan amount. They will be using a “stress test rate” to see if you can handle sudden spikes in interest.
The stress rate is now standardized at 3.5% to calculate the loan quantum for residential properties and 4.5% for commercial properties.
Hence, this means home buyers must maintain a TDSR of 60% or under, even if interest rates were to rise to 3.5%. This will affect the loan quantum (i.e., the total amount that can be borrowed), even if there are no outstanding debts.
Buying a private property allow you to get a higher loan amount compared to buying a HDB flat
|Home Loan Components||Private Property||HDB/New Executive Condominium|
|Downpayment||Up to 25% cash||10% can be fully paid using CPF (HDB Loan)|
5% must be paid in cash,
20% can be paid in cash or CPF (Bank Loan)
|Maximum Loan Tenure||Up to 35%||Up to 25 years (HDB Loan)|
Up to 30 years (Bank Loan)
|Interest Rate||Fluctuating or Fixed||2.6%|
Mr. and Mrs. Lim are planning to get their first property. However, they are considering whether to get a HDB or private property.
The couple is both aged 30 years with a fixed combined income of $10,000 per month. They do not have other loan repayments.
Scenario A: Buying a HDB flat
Based on MSR of 30% of $10,000, the monthly payment on the property loan must not exceed $3,000.
At an interest rate of 3.5% (required by MAS) and over 25 year loan period (maximum allowed for HDB loan), the loan amount is about $600,000.
Scenario B: Buying a private property
Based on TDSR of 60% of $10,000, the monthly payment on all loan payments must not exceed $6,000.
As the couple does not have any other loan repayment, the $6,000 can be taken solely for housing loan payment.
At an interest rate of 3.5% (required by MAS) and over 30 year loan period, the maximum loan amount is about $1.4millions.
From the above example, property buyers can obtain a higher housing loan amount when buying a private property compared to buying a HDB flat.
*Note: For the maximum property value that can be afforded, it will depend on the cash on hand and CPF Ordinary Account that the buyer(s) will have and how much will be used.
If this sounds like too much math or too complicated, you can use the below affordability calculator to make a quick assessment!
All figures are to be based on 2 persons if you are purchasing a property with your partner. For the age, key in the oldest age.