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How much should your house cost?

(Part of “The Almost Complete Goondu’s Guide to Buying a HDB Flat in Singapore” series.)

Tan Kin Lian suggests that the cost of your house should be limited to:

    – 7 years of the breadwinner’s income
    – 5 year of the combined family income

Eg. If guy makes $3k and girl makes $2k, house should cost $252k (7yr breadwinner), or $300k (5yr combined).

That however, is not the maximum loan that you can qualify for. Banks will allow you to use as much as 40% of your monthly income to repay your loan, while HDB generally will allow a much lower percentage for loan repayment.

I personally suggest that the price of your house should have maximum monthly payments that do not exceed you and your spouse’s monthly CPF Ordinary Account (OA) Contributions.

If you are below 35, 66.7% of your monthly CPF contributions enters your OA account. A quick estimate of calculating this amount is: [0.23*(gross pay)]. (Use this calculator for more accurate figures) Note that the amount is more than 20% of your pay, because you have to add in your employer’s 14.5% contribution as well.

Eg. If your monthly household income is $5000, your monthly payment should not be more than $1150. That works out to be approximately $285k in loans, payable over 30 years at 2.6% p.a. interest (HDB loan). If you add in the 10% downpayment, your property should not cost more than $317k.

Ideally, it would be best to limit it to one party’s income, so that in case one party decides to stay home and look after the kids, or if one party loses the job, you still have the other party’s CPF to pay off the installments.

Use CPF’s free monthly installment calculator to help you figure out whether your monthly payment would fit your budget comfortably.

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