How to Plan Your Property Budget in Singapore and Determine Loan Eligibility in 4 Steps

Determining your loan eligibility for a home loan is arguably the most important part of planning for your property purchase. Knowing your mortgage affordability will help you narrow down your search for properties in your budget. Especially if it’s your first time buying a home, it’s important to do your research before buying property. You don’t want to make poor financial decisions or be misled into deals to avoid Additional Buyer’s Stamp Duty (ABSD).

To help aspiring property owners like yourself, we’ll walk you through the steps to properly plan your finances for a property purchase.

First, you’ll want to assess your financial situation to determine mortgage affordability.

Factors such as your current income, age, savings, credit score, and outstanding loans and debts will affect your home loan eligibility and determine mortgage affordability.

Considering that many first-time property buyers are under 40, let’s look at a case study where the gross monthly income is $10,000. We used this number because, according to the Labour Force in Singapore 2023 report, the median monthly household income among resident-employed households, excluding employer CPF contributions, is $9,646.

We’ll also assume the borrower has cash savings of around $30,000, is a Singaporean citizen, and has no debt or outstanding loans.

The ideal situation you want to be in is one in which you have an excellent credit score to increase your chances of getting pre-approved on a loan. You’ll also have a healthy amount of cash and CPF savings. Maybe you have a car loan you’re still servicing, but that’s okay. The most important thing is to be honest in your assessment of your current financial situation.

Once you’ve got that down, the next thing to do is find the answer to the all-important question: How much can I borrow for a home loan?

There are two important limits to how much leverage you can take on for your property.

The Total Debt Servicing Ratio (TDSR) limits your total debt repayments to a maximum 55% of your gross monthly income. If you plan to purchase an HDB flat or an EC that has not reached MOP, you’ll need to also consider the Mortgage Servicing Ratio (MSR). The MSR states the monthly repayment instalments for all your property loans can only be a maximum of 30% of your gross monthly income.

You can see above how the TDSR and MSR affect how much you can repay monthly for a home loan.

The next thing to consider is the Loan-to-value (LTV) limit, which determines the maximum amount an individual can borrow from a bank. It’s calculated as a percentage of the property price or valuation, whichever is lower. It is dependent on factors such as outstanding housing loans, loan tenure, and the age of the borrower.

According to the Monetary Authority of Singapore (MAS) rules, the lower LTV limit is applied if the loan tenure is more than 30 years (or more than 25 years for HDB flats) or if the loan period extends beyond the borrower’s age of 65 years. That means if you want a mortgage with a longer loan tenure, your LTV and loan eligibility for a home loan will be affected if you’re older.

This then affects the down payment you need to make on the property and how much of it needs to be in cash or CPF.

I know what you’re thinking. There are too many numbers to calculate, and it’s definitely not easy for a first-timer. The good news is you can use PropertyGuru Finance to make life a lot easier for you.

The easiest and surest way to check your eligibility for a home loan is to get pre-qualified by a PropertyGuru Finance Mortgage Expert.

All it takes is 10 minutes to answer a few questions about income and commitments to get instant results online. Then, you get an instant result that’s based on MAS guidelines and completely free of charge.

This is best for home buyers who are early in the process and want to set their budget before viewing homes.

Later down the line, when you’ve narrowed your search, you will need an In-Principle Approval (IPA). This will give you confirmation of your loan eligibility from a bank after you complete a quick consultation with a Mortgage Expert and submit income-proof documents and a bank application form.

An IPA has a validity date of 15-30 days, so it’s better suited for those who want to confirm their loan eligibility with a bank before making an offer on a property.

Having an IPA will also show sellers you are a serious and eligible buyer, increase your chance of securing your desired property, and speed up the loan application process.

At this point, you’ve got your loan eligibility for a home loan down, and all the numbers are out of the way. It’s time for the fun part: browsing property listings!

Here’s a tip: use our Home Value Tracker to evaluate property prices and trends in target areas. This way, you know if you’re getting a good deal and better negotiate with sellers.

Going back to our example, the income, age, interest rate, and LTV provided will yield a loan amount of approximately $1,050,000.

This means the borrower can afford a property that’s around the $1,400,000 mark.

But wait! There are additional fees you have to pay, such as stamp duties and legal fees. Assuming you buy a $1,400,000 property and have at least $280,000 in your CPF OA, you’ll still have to fork out around $114,100 in cash. Here’s a breakdown:

You can use our Stamp Duty Calculator to figure out how much BSD and ABSD you’ll have to pay.

If your dream home is more than what your loan can get, you will have to make up for the difference in cold, hard cash. When you determine mortgage affordability, it’s less likely you’ll run into this problem.

Some ways to improve your loan eligibility for a home loan is to pay down debts and improve your credit score (if required). By improving your financial health, your home loan eligibility increases and buying your first property becomes less of a financial stretch.

Buying property can be a great way to build wealth but you need to determine mortgage affordability and do careful planning before taking the plunge. If you require home financing advice from an expert, do not hesitate to reach out for help.