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How much money does a couple need to earn in order to afford a $300,000 HDB flat?

25 Feb 2014 
SOURCE: SG Young Investment

​You have been dating your partner for the past few years and now it seems like the time to settle down. Apart from the proposals and wedding preparations, most couples will apply for a HDB BTO flat even before they get married. This is to ensure they have their house ready for them to move in by the time they get married. This is the dream of owning a home of your own for many young couples.

 

Everyone knows that property prices have risen by a substantial amount over the past few years. Young people are getting increasingly worried about not being able to afford a HDB flat. Getting a flat may be the first time you'll be getting into debt. The word "debt" scares many people and the thought of paying a monthly instalment for the next 20-30 years is a burden. How much income do you need to buy a flat? How much loan can you take? These are some questions which many young couples would want to know. So can you really afford a HDB flat in Singapore? Let's find out.

 

Typical Scenario
HDB flat price: $300,000 (4 room flat)
Down payment: $30,000 (10%)
Number of years of loan: 25 years
Loan amount: $270,000
HDB loan interest rate: 2.6%
Monthly housing loan instalment payable: Estimated $1225 (Calculated from HDB loan calculator)

 
Here i put the HDB flat price at $300k. This is typically the price of a BTO 4 room flat. If you are able to get yours at a cheaper price because of the various grants, then you can expect a lower monthly payment. If yours is more expensive, you can adjust accordingly.

 
Here are a few things a couple should note when buying a house:

 
1) Downpayment of 10%.
This means if you don't have $30,000 in your CPF account, prepare to pay some in cash. You need this amount to settle the first part of your house. However, you can pay 5% first when you apply for the BTO and 5% later when it is completed before you move in. This gives you more time to save up that amount.

 
2) Number of years of loan from HDB is limited to 25 years currently. You can't get more than that. Previously it was 30 years but it was brought down during the cooling measures last year.

 
3) HDB loan interest rate is fixed at 2.6% currently. Banks offer a lower interest rate but they are floating. This means the interest rates of banks changes depending on economic conditions. With HDB loan, you don't have to worry about interest rates rising

 
4) A maximum of 30% of your gross monthly income can go into home loan repayments currently. If you earn $3000, only $900 can be used to pay for your housing loan. This is known as the Mortgage Servicing Ratio(MSR) Also take note that housing loan repayments, after adding all your repayment obligations (student loans, credit card debts, car loans, personal loans, etc.), cannot exceed 60% of your income. This is the Total Debt Servicing Ratio(TDSR).

 
*All the above factors may change as the government adjusts their housing policies. Info correct as at 24/02/14 as stated on HDB website.


How much money does you and your spouse need to earn in order to afford a $300,000 HDB flat?

If monthly instalment is $1225 for a $300,000 HDB flat with 25 years loan repayment period, you and your spouse's combined gross income must be at least approximately $4100. The magic number is $4100. This is to meet the 30% criteria of the maximum gross monthly income that can go into home loan repayment. Any income below that level and HDB may not grant you the loan you need.

 
Even before that, you need to come up with the $30,000 for the down payment. With a combined income of $4100, you and your spouse need to work for 34 months(~3 years) before your CPF savings have the $30,000. (calculated based on monthly CPF contributions to ordinary account only. Approximately 63.9% of total monthly CPF contribution goes to ordinary account. The rest goes to special and medisave account respectively)

 
Let's summarise it. To afford a $300,000 HDB flat, you and your spouse should have a combined gross income of at least $4100, work at least for 32 months to save up for the down payment ($30k) and pay $1225 monthly for the next 25 years.

However, do note that with $4100 combined gross income, it is not enough to pay for all of your housing loan by CPF since only $900+ goes into your Ordinary Account (OA). You and your spouse need to have a combined gross income of about $5500 to pay for all your housing loan by CPF and without cash.

I hope the above information helps you in planning to buy your first home.

*Disclaimer - The above calculations are based on estimation and calculated using tools on HDB website. It does not reflect the actual loan that you will qualify. When in doubt, check with HDB or a licensed financial institution.
 

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