Start with Your Income and Debts
The foundation of your home-buying budget is your household income and existing debt obligations. Lenders in Singapore use the Total Debt Servicing Ratio (TDSR) framework to determine how much you can borrow. TDSR currently caps your total monthly debt repayments at 55% of your gross monthly income. This includes your new mortgage plus any other debts (car loans, student loans, credit card repayments, etc.). For example, if your combined monthly income is $8,000, all your debt repayments – including the home loan – should not exceed $4,400. If you have no other loans, that $4,400 could be available for the mortgage. If you do have existing debts, you’ll need to factor those in and realistically see what mortgage payment you can handle. An easy way to get an estimate is to use Cashew’s Mortgage Affordability Calculator: enter your income and current debt payments, and it will calculate the maximum loan amount and property price you might qualify for under TDSR guidelines. This gives you a ballpark figure to start with.
Understand MSR if Buying an HDB or EC
For those planning to buy HDB flats or executive condos (ECs), there’s an additional rule: the Mortgage Servicing Ratio (MSR). MSR caps your monthly mortgage payment to 30% of your gross income for loans on those properties. It’s basically a stricter limit nested under TDSR. For instance, using the earlier example of $8,000 income, even if TDSR allows up to $4,400 for all debts, MSR means your HDB home loan itself can’t exceed $2,400 (which is 30% of $8k). In practice, if you have no other debts, the MSR becomes the binding limit for HDB buyers rather than TDSR. The goal is to ensure affordability and prevent over-borrowing on public housing. Be aware of this if you’re set on a BTO or resale HDB – the loan amount available might be less than what TDSR alone permits. Cashew’s calculator takes MSR into account automatically when you indicate an HDB property, so you won’t miscalculate. Understanding these ratios keeps your expectations aligned with what banks or HDB will actually lend you.
Factor in Your Downpayment and Savings
Your maximum budget isn’t just about how big a loan you can get – it’s also about how much downpayment you can afford. Singapore property purchases require a significant upfront payment. For a first-time buyer using a bank loan, you need to put 25% of the purchase price as downpayment (minimum 5% in cash, the rest can be CPF or cash). If you’re eyeing a $600,000 condo, that means coming up with $150,000 (with at least $30,000 cash). For HDB purchases, if you take the HDB loan, the downpayment is 20-25% (currently 20% for HDB BTO or resale if loan up to 80% LTV, all of which can be CPF). The exact percentage can change with policy, but plan for roughly one-fifth to one-quarter of the price. Review your savings: how much do you have in your CPF Ordinary Account that can go toward this, and how much liquid cash have you set aside? Remember you’ll also need to pay stamp duties (which cannot be paid with CPF for private property, only cash/CPF for HDB stamp duties) and other fees. It’s wise not to empty out every dollar – maintain some emergency fund. If your savings fall short of the downpayment required for the price of the home you want, you may need to adjust your target price downward or delay purchase to save more. On the flip side, a healthy savings and CPF balance might mean you can comfortably afford higher than what your income-based loan alone suggests (since a bigger downpayment means you borrow less). A holistic affordability assessment looks at both the maximum loan you can service and the cash/CPF you have for upfront costs.
Consider Loan Tenure and Interest Rates
Another factor that influences affordability is the loan tenure (the length of your mortgage) and the interest rate. A longer tenure (say 30 years vs 20 years) lowers your monthly payment and can help you meet TDSR/MSR, effectively allowing you to afford a more expensive home on the same income. However, stretching a loan means you pay more interest overall. Most first-time buyers opt for the maximum tenure available to them (common limits are 25 years for HDB loans, 30 years for bank loans on HDB flats, or up to 30-35 years for private property bank loans) to keep payments manageable, and you can always prepay faster later if you have extra funds. Interest rates, on the other hand, are a big variable – they determine your monthly installment. Currently, mortgage rates are around the 3-4% range for bank loans (and 2.6% for HDB concessionary loans). If rates go up, your future payments on a floating rate loan will increase, which could strain your budget. It’s prudent to stress-test your affordability: ask yourself if you could handle the mortgage if interest rates were 1-2% higher than today. For instance, a $1 million loan at 2% interest might cost about $4,200/month over 25 years, but at 4% interest it’d be about $5,300/month – a significant jump. When using calculators, try plugging in a higher interest rate to see the impact. Alternatively, you might consider a fixed-rate loan to have stability in the first few years. In short, choose a combination of loan amount and tenure that leaves you comfortable even if economic conditions change.
Don’t Forget Other Homeownership Costs
Affordability isn’t just about the purchase. Once you own the home, there will be ongoing costs. Make sure your monthly budget accounts for things like condo maintenance fees (which can be several hundred dollars a month), HDB conservancy charges (usually lower, under $100), home insurance, property tax, and utilities. While these aren’t part of the bank’s TDSR calculation, they do affect your personal finances. If you max out your mortgage budget and then realize you have no buffer for these recurring costs, you’ll feel house-rich, cash-poor. A good rule of thumb is to keep an additional few hundred dollars per month in your projections for these expenses. It’s also wise to set aside savings for maintenance – aircons need servicing, things will break, or you may want to upgrade appliances. Financial planning for a home means looking beyond the sticker price. On the flip side, if you plan to rent out a room or have other income sources, that can improve affordability, but be cautious about counting on it. The safest approach is to ensure you can pay for the home comfortably on your primary income. By taking a holistic view – considering loan limits, downpayment, interest, and ongoing costs – you’ll arrive at a realistic home price that you can afford without sleepless nights. And with that budget in hand, you’re ready to start the home search knowing you won’t be stretching too far.
Sarah Chen
