“What? Of course, the price I can afford is $1.2 million.” No, wrong answer.
Even though your bank loan limit is $850,000 based on your Total Debt Serving Ratio (TDSR, which is 60%), you may not get such maximum amount when buying a certain property because of Loan To Value (LTV) limit, which is currently 75%. In addition, you need to pay lawyer fee, Buyer’s Stamp Duty (STD) and Addition Buyer’s Stamp Duty (TDSR) in cash or CPF, which means not all your $350,000 cash is for the property price. So, how much property price can I afford?
Many of my friends are in a situation like this: 1) Having only one property, living in it and it is fully paid up, now considering to buy the second property for investment. 2) All CPF has been used to pay the first property, so the second property will be financed by bank loan and cash, no CPF. So, let’s do our calculation for the above situation to answer this question: With upto $850,000 bank loan and $350,000 cash, what property price can you afford?
(If your situation is not the same as above, you are welcome to contact me for free advice at 9858 9821)
Loan To Value (LTV) Limit
According to MAS regulation, for the first mortgage loan (supposing the loan for your first property has already been paid up), if the loan term is not longer than 30 years and the maturity age does not exceed 65 years old, then your LTV limit is 75%, and meanwhile taking into account that banks can provide you a loan upto $850,000, then as result, if the property price is $1,133,000 or less, you can get a bank loan of 75% of the price; if the property price is higher than $1,133,000, you can get a bank loan of $850,000.
Purchasing Cost Above Property Price
As a buyer, in addition to the property price, you need to pay lawyer fee, normal Buyer’s Stamp Duty and Additional Buyer’s Stamp Duty. Approximately, lawyer fee plus normal Buyer’s Stamp Duty is around 3% of property price, Additional Buyer’s Stamp Duty is 12% of property price (supposing you are Singaporean). So the purchasing cost all together is about 15% of property price. This cost you have to pay in cash. According to the government regulation, as least 25% of property price must be paid in cash. So, as result, the total cash you need to pay is at least 40% of property price. Taken that you have $350,000 cash, so the property price you can afford is $875,000.
The property price you can afford is $875,000. For it, you can get bank loan of $875,000 x 75% = $656,250 and pay $875,000 x 25% = $218,750 in cash. On top of the property price, you need to pay $875,000 x 15% = $131,250 in cash for purchasing cost, including lawyer fee, normal Buyer’s Stamp Duty and Additional Buyer’s Stamp Duty.
Monthly Payment For Bank Loan
For bank loan of $656,250, how much is your monthly payment? Supposing you are 39 years old, then your maximum loan term is 26 year. So, if the rate is 2%, you monthly payment is $2,700; if the rate is 2.5%, it is $2,862; if the rate is 3%, it is $3,032.
Now, we found the truth. With upto $850,000 bank loan limit and $350,000 in cash, you can only buy a property of $875,000, which is quite different from what you thought at the beginning. The key reason is you don’t have enough cash.