Financial Planning

Are you ready to commit to a new home, this are some commonly used terms to know when buying your new house:

Total Debt Servicing Ratio (TDSR) –

TDSR calculates the percentage of your income that can go into servicing your loans (all loans including housing loan, car loans, credit card debts, student loans, etc.). At present, the highest TDSR that banks are allowed to lend out is 60%. This is to mitigate the risk that people borrow down to the last dollar that they make.

For instance, if your household monthly income is S$12,000, and assuming your monthly car loan repayment is at S$1,200, you can only borrow an additional S$6,000 per month. (60% of S$12,000 = S$7,200).

 

Mortgage Servicing Ratio (MSR) – 

MSR calculates the percentage of your income that can go into servicing your housing loan. This is a more stringent criteria and is only applicable to Executive Condominium purchase and HDB loans and is set at 30% of income.

For instance, even if you do not have other loans, you are only able to borrow up to 30% of your income. As a fun fact, because of this rule, you may be able to afford a higher priced condominium but not an EC.

Loan to Valuation (LTV) – 

LTV measures the maximum amount of loan you can take based on the property that you are mortgaging. At present, the highest LTV that banks are allowed to lend out is 75%. This is to mitigate the risk that sudden drop in properties may result in subprime crisis as home owner choose to forfeit their homes so as to avoid making payments that are above the value of their house.

 

Of course other than the above, one have to consider other factors such as 

  1. Variability of monthly income – if you are self-employed or are paid in a huge proportion in terms of commission and bonuses, you may not be able to secure loan of up to only 70% of these income.
  2. Term of loan (and age of borrower) – if you are under the age of 35 years ago, you can typically borrow the full quantum based on 30 years.
There are many available free sources that you can use to obtain an In Principal Approval (IPA) from local financial institutions to know the amount that you can borrow. Of course to make it more confusing and complex, there are other financing available such as bridging loans, special structuring of loans through various pledging that one can explore.

There are other factors to consider when purchasing your first property. such as the ownership structure of property, for instance, most young working couples might enter into a property purchase based on an equal 50% share of the property. An alternative approach might be to use a 99% and 1% share structure, which will allow couple to save on Additional Buyer Stamp Duty (ABSD) if they are considering to invest in Singapore properties in the future.

 Profile of Buyer

ABSD Rates 

Singapore Citizens (SC) buying first residential property

 Not applicable

SC buying second residential property

12%

SC buying third and subsequent residential property

15%

Singapore Permanent Residents (SPR) buying first residential property

 5%

SPR buying second and subsequent residential property

 15%

Foreigners (FR) buying any residential property

20%

Do speak with us on things that you should take note of when buying your property as it may potentially save you a hassle and your hard-earned money in future years.