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5 Ways to Analyse What Type of HDB BTO Flat Can You Actually Afford?

You and your spouse/future spouse have decided to apply for an HDB Built-to-Order (BTO) flat but are not sure which flat type you can afford.

In today’s article, we will look at the financial aspect of buying a home.

1. Affordability

Make use of the HDB calculator, to work out your budget before looking for a suitable flat.

It will provide you with an estimated housing budget taking into account the following:

  • Available CPF Ordinary Account (OA) savings (you may retain up to $20,000)

  • Probable CPF Housing Grant amount (taking into account your income ceiling)

  • Estimated housing loan amount from HDB or regulated financial institutions (FIs)

Upon entering the relevant information, the calculator will give you an estimated amount of how much you can afford for a new flat.

That will allow you to make an informed decision on which flat type to apply.

Based on the November 2020 BTO launch, prices for new BTO flats in the various towns are as follows:

Be sure to also set aside money for related costs such as the booking fee and downpayment, which you may need to pay part of or all of the following using cash.

You can use your available CPF OA savings to pay the downpayment.

However, if your OA savings are not sufficient, you will have to pay the balance amount in cash.

2. Budgeting

Unless you are blessed with a very large sum of money, you are likely to take a housing loan to finance your new home.

This means a long-term financial commitment that could stretch up to your retirement age.

Therefore, it is paramount that you plan ahead and be prudent.

Ensure that you can service the housing loan comfortably and at the same time, live the lifestyle you desire.

To work out a realistic budget, you need to consider your household income and how it may be affected by circumstances such as job loss or recession and also if you want to start a family.

Calculate how much you need as a monthly expense for necessities such as food, transportation, relaxation and wellness.

If you are planning to have a wedding reception, you also need to factor in the money needed. Then there is the renovation expenses and furnishings and fittings costs.

In addition to the monthly housing loan instalment, buying and owning a home will also involve monthly expenses such as Service and Conservancy (SC) Charges, utilities and services bills, property tax and other maintenance costs.

3. Housing loan

You can get a housing loan from either the HDB or any regulated financial institution (FI).

If you wish to take out an HDB housing loan, you need to first apply for and obtain an HDB Loan Eligibility (HLE) letter. The HLE letter will inform you of the loan amount, based on your current financial situation.

To take out a housing loan, you need to meet the eligibility conditions and credit assessment criteria.

You must also take note of the following financing requirements:

If you decide to take a housing loan from a regulated FI, you will not be allowed to refinance your loan with a housing loan from HDB.

Before deciding, study the loan packages carefully and look out for important terms and conditions such as lock-in periods, interest rates, and other financial considerations.

4. Mortgage Servicing Ratio

The mortgage servicing ratio (MSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans and is imposed by the Monetary Authority of Singapore (MAS).

Under the MSR, a maximum of 30% of your gross monthly income can be used to repay your loan. It is important to note that the employers’ CPF contributions are not included in the calculation of your gross monthly income.

However, the employee’s contribution, which is deducted from your monthly salary, can be included in the gross monthly income.

5. Total Debt Servicing Ratio

In addition to the MSR, there is also the Total Debt Servicing Ratio (TDSR).

TDSR is imposed by MAS to prevent individuals from taking out home loans that they cannot afford to repay.

TDSR is calculated by dividing a borrower’s total monthly debt obligations by gross monthly income.

Currently, the TDSR for property loans is set at a maximum of 60% of the borrower's monthly income.

So when deciding which flat type you can afford, take into account the above pointers and work out your sums. It is best to prudent and buy within your means.

Good luck with your BTO application and happy house hunting!

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