How much $$$ do I need for a house? (WAT #4) - Mortgage Master Blog

How much $$$ do I need for a house? (WAT #4)


msr final.png

- by Kyler Q.


There are some things that we can be certain of.



The sky being blue.


Bugs bunny falling out of the sky;






The grass being green


George Clooney peeking out of the grass;






Houses in Singapore being expensive af.


kenny omega meh expression;



Housing here has been a debated issue, especially in our generation.


Do you really want to stay here? Is Singapore really where you want to live?
How can this be your homeland when there’s not even enough land for your home?




I too agree that houses here are expensive for its size, especially when you compare it to properties in other countries where you pay the same amount but get a property that's 5-10x the size.


Because of this, it’s not uncommon to hear from friends that they want to move out of Singapore simply because housing and cost of living is also cheaper elsewhere.



But exactly how much does it cost to purchase a house in Singapore?




How much do I need for a BTO in Singapore?

Based on the latest BTO (Nov'20), and assuming you take a HDB loan, you'll need about $346k-973k for a BTO in Singapore.


Jim Halpert eyes opening widely;






Alright calm down.





Firstly, I've already included the loan interest for you, so that amount ^ is like the nett total you're going to need for a BTO flat.

That means it's downpayment (minimum of 10%) + loan (maximum of 90%) + loan interest (2.6%/yr)



Secondly, the reason why there's such a big variance is because of the # of rooms and location.

For example,

The $346k is for a 4-room flat in Sembawang, while the $973k is for a 5-room flat in Bidadari (Toa Payoh area).


Fyi;
The Bidadari BTO had a application rate of 15.1 (meaning for every 1 flat, there were 15 people competing for it),
while the Sembawang one was 4.1 (cause nobody really wants to stay in Sembawang lol) jk it's chill and has good Thai food


So yeah, you can really see how demand, based on just the number of rooms and where it's located at, will affect its prices.


Huh why got interest one? Can don't?

You saw that I included "loan interest" in the section above. This interest comes from the mortgage loan.

A mortgage loan = a housing loan. It's just an atas word for it.
It’s like euphoric = very happy, somebody just wanted a fancy name for that too.


Jim Halpert eyes opening widely;



Simply put, a mortgage loan pays for your entire house now, and you slowly pay it back over the next 20+ years.


Since HDB/ A Bank lent you that money so that you can live in a house now (a house that you haven't fully paid for), they charge interest for it.



Hate to be the bearer of bad news but ..

Unless you happen to have enough money in your bank/cpf to pay off everything before getting your house, you're gonna need a mortgage loan for your house ... which means you can't escape the interest.




So, can I afford a house in Singapore or not?


Now that you know how much it costs to get a BTO flat, the question shifts to affordability.
Honestly, housing in Singapore only seems expensive because you're just looking at paying the total amount immediately.

You're not supposed to pay the entire $900k+ on the day you get your house!!


It's to be paid over 25-30 years.
Because how the hell you gon' pay that much money in your 20s/30s?
(I spent about $100 for Christmas gifts this week and I alr wanted to cry)



So, stop looking at paying the entire cost immediately. That's what the mortgage loan is for.




To answer the question, yes, most of us can afford a house in Singapore.

In fact, I would say we can comfortably afford it.
Here's why.



Using the mortgage calculator, a total income of $3540 will get you a 4-room flat in Sembawang.

And that's if you're buying it alone.


That means ... if you're getting it with your spouse, the combined salary from the both of you just need to equate to $3540.
Which is an average salary of $1770.

That's enough to get you a 4-room flat!!

IT'S. NOT. THAT. UNREALISTIC.



For comparison sake, the $762k flat in Bidadari requires an income of $9890. That's about $5k/month for each partner.
Yes, I understand that not everybody is drawing that amount, and the $762k price tag might still be steep, but that unit is also the crème de la crème.


A huge portion as to whether you can afford a house or not depends on your income.


antoine dodson saying 'well, obviously';




Not only because it gives an insight to your spending power, but your income also determines how big of a loan you can take.


But that doesn't mean you can use 100% of your salary to quickly pay off your debts to minimize interests because

(1) That's just straight up bad financial management.
(2) The Government has also implemented 2 policies to prevent this so people won't fall victim to (1)




Total Debt Servicing Ratio (TDSR)

The first is the Total Debt Servicing Ratio (TDSR).


For this, your entire monthly debt obligations (credit card, car loans, student loans, housing loan) will all be accounted.

The TDSR limit is 60% of your income.

Meaning, if I earn $4k/month, the maximum I can use to pay back all my debts is $2.4k.


I'm sure you've seen/heard of that rule of thumb where you have to save 30-40% of your salary. This is basically it, just repackaged as a law.


So, if you want to get a bigger housing loan, don't go and sign up for new credit cards/get a new car right before that.

Those loans are going to take more weightage in that 60%, meaning your housing loan gets less room (literally too, cause you can only buy a smaller room flat)




Mortgage Servicing Ratio (MSR)

The second is the Mortgage Servicing Ratio (MSR), which only accounts for your mortgage loan.


This is a limit implemented by the Government because in the past, people didn't mind spending half of their income just to be able to buy a condo (boomers and their 5 'C's 🙄)

Currently, the MSR limit is 30% of your income.

Meaning, if I earn $4k/month, the maximum I can use to pay back my mortgage loan is $1.2k.


From this $1.2k, HDB/banks/mortgage brokers are able to see the loan you're eligible for, which will then determine what kind of house you're eligible to purchase.



What's important to take note is that,


If you want to buy a HDB property (BTO/Resale/Executive Condos), you must pass both TDSR and MSR.
If you want to buy a private property (Private Condo/Landed houses), you only need to pass TDSR.




What does all these mean?

If you're new to all these terms, it's fine. The only time you really need to bother about all these, is when you're looking into getting a house.


If you're not at that stage right now, then just come back here in a couple of years time, no rush.

The main point was to give you a brief idea as to how much you'll need for a BTO here. From personal experience, I've had many friends who have voiced their displeasure at how much it takes to get a house in Singapore, yet alone at that restricted size.

But as I was doing research for this article, I too was surprised to see that an income of $3.5k can afford a 4-room flat. And it's not like I would have to spend the entire salary because there are measures to prevent people from blowing their entire load on repaying their house.

However, this shouldn't stop your plans.
Be it getting a BTO for temporary purposes before retiring abroad, or looking at BTO flats as an investment opportunity (if u wanna know more), or realizing that 'HEY! I actually have enough money to stay in Singapore', at least now you know how much you need. Just take this as additional information that you can use to make a more sound choice.

Go live your life.

Till next time, be good people.


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TL;DR, TLDR - A too long;didn't read (TLDR) table but renamed to Table for Lazy, Disinterested Readers showing the
main keypoints for about MSR and TDSR

More in the WAT series

What are mortgage brokers and what the hell do they do? (WAT #1)

Reading relevant reports regarding Refinancing (WAT #2)

Recycling related titles regarding Repricing (WAT #3)

Posted in WAT on Dec 23, 2020.