Are you ready for one of your biggest investments of your lifel?!
Since everybody’s dream home and financial situation is different, I figured that it’ll be better to teach you how to do the calculations yourself for your own situation and provide you with an example.
I’ll be answering these questions in this post:
Use it as a guide and make the necessary tweaks for your own situation and your dream home.
How to calculate the cost of my home?
You’ll need the following information:
How much will your first home cost?
Calculating the cost of your home between a HDB loan and Bank loan is slightly different.
Let me give you an example:
Both of the couple’s CPF OA Savings will be wiped out, reducing the loan amount of the house.
Let’s see the cost of the house for the same couple who intend to get the same house with a bank loan.
As you can see, with a bank loan, CPF OA savings is not mandatory for it to be wiped out.
Also, a minimum of 20% of the home’s purchase price has to be allocated for downpayment.
How much and how long do I need to save for my downpayment?
If you want to pay your downpayment using CPF,
You’ll need to find out your CPF contribution rate and CPF OA allocation rate. Check both here.
The CPF contribution rate is the percentage of your salary that goes into your CPF every month.
The CPF OA allocation rate is the percentage of your CPF that goes into your OA every month.
Let’s take the same couple as our example.
As the married couple is in their late 20s:
That means, every month:
So if they want to pay their downpayment using CPF, they would need to save $1,380 a month for at least 22 months. ($30,000 / $1,380= 22 months)
If they want to pay their downpayment in cash, they would need to save $4,980 ($6,000 - $1020) for 6 months without spending a single cent. [$30,000 / $4,980 = 6 months]
However, we both know it’s impossible to save for 6 months without spending a cent.
So, if they saved 20% of their incomey, they would have saved $1,200 per month. [$20%*$6,000]
With that being said, to save $30,000 of downpayment, they would need to save $1,200 for 25 months. [30,000 / 1,200 = 25 months]
How much do I need to earn to pay off my loan instalments?
MAS has implemented a Mortgage Servicing Ratio of 30%, this ratio is the maximum percentage of your total gross income you can you use to service your housing loan.
Taking the same example above,
It means they can only use a maximum of $1,800 [30% of $6000] to pay for the housing loan every month.
Since the monthly loan instalments is $1,180, they’ll need to earn at least $4,000, so that they can keep their monthly instalments just under the 30% limit. (30% of $4,000 is $1,200)
You can use the MSR calculator to find out how much you need to earn for your own desired house.
I understand that the example used may not be relevant to your specific situation, but I hope you have learnt the step by step calculation process! :)