Two months have passed since my last update, and wow! So many things have happened since then. I’m finally writing an update now because - yes, we’ve found our next home and sealed the deal! 🎉

But let’s backtrack a bit - there were a lot of steps we had to go through to get to this stage. Today, I want to pick up where we left off and expand on one very important step: Calculating our affordability, aka just exactly how much can we afford to pay for a resale HDB unit.

To do this, we can work backward. Let’s first take a look at how you can fund your flat purchase.

Types of Funds for Down Payment

For a typical Singaporean and PR, there are three types of fund you can use for a down payment to buy an HDB flat in Singapore:

• CPF Ordinary Account (OA) Balance - You can login to myCPF and look at how much balance is in your Ordinary Account.
• Cash on Hand - This accounts for whatever liquid cash you have. This could be your cash savings, investment, stock options, bonds that are going to mature soon, etc. I would not include anything you can’t (or don’t want to) cash out within the next 2-3 months.

If you are getting a bank loan, the down payment needs to make up for at least 25% of the price of the property you’re buying. If you qualify for HDB loan, the down payment only needs to make up for 15% of the unit price. The rest will be covered by a loan.

Loan Amount

Whether you are getting a loan from HDB or Bank, finding out the loan amount you’ll be able to get is crucial.

The loan amount is determined by your risk factor, which in turn is typically determined through your income. Either way, you’ll want to make sure you’re able to get enough loan to cover at least 75% of the unit price (or 85% if through HDB loan).

If you are getting a bank loan, there are two ways to go about it:

1. Use a mortgage aggregator service

I reached out to Redbricks for this. Redbricks is a mortgage aggregator, and their agent will be able to advise you on how much loan you’ll likely get based on your profile and income.

They’ll also help you by advising the loan package available and what the interest market looks like, so you can decide which type of loan you want. They will also assist on getting an In-Princple Approval for the loans and refer you to a law firm for your legal proceedings.

What’s in it for Redbricks? I don’t have visibility on the details, but they likely get commission from the banks for referring you as their customer. Theoritically, it could mean that they could be recommending the bank / package that will get them the most commission. However, that was not the case with my experience. At least not for new loan. If you’re refinancing, it’s worth checking with the bank to see if they can give you a better rate.

2. Do it yourself!

If you want to DIY this step, it’s possible. You can approach the banks directly. DBS, UOB, OCBC, HSBC, Stan Chart are examples of banks that can offer you a home loan. You’ll just have to go to each bank and submit your profile to get an estimate. Then, you’ll need to do research to choose which package you’ll go for based on the current market conditions.

Once you’ve submitted the documents, you’ll get an In-Principle Approval (IPA) from the bank which states how much maximum loan they can give you. The IPA is valid for 30 days, but usually you won’t have a hard time getting another one if your income situation have not changed. Lastly, you can get as many IPA as you want with different banks, but you can only sign with one bank in the end.

Estimated Expenses for Buying an HDB

Next, you’ll want to anticipate the expenses involved in buying an HDB, so you’ll know what you can actually afford.

I budgeted for the following expenses:

• Option Fee - Typically, you’ll need to pay $1,000 to submit an option for a flat you like. Then, you need to put down another $4,000 to exercise that option. And yes, this amount will be subtracted from the downpayment later on if the sale goes through.
• Buyer’s Stamp Duty (Payable by CPF) - In order to purchase your flat, you need to pay a stamp duty. The cost depends on the price of the unit, but generally will be around $15,000 to $20,000 for resale flats. Click here for the BSD rates
• Legal Fees (Payable by CPF) - You’ll need to hire a lawyer to take care of the legal proceedings. I paid $1,800 for mine.
• Renovation - Varies depending on the extent of the renovation and age of the flat you’re buying. Could be anywhere from $30,000 to $120,000. Whatever amount you think you’ll spend, I recommend adding 15% more in case you go over budget.
• Fittings & Appliances - Again, depends on the brand that you’re going for.
• Furnitures - Beds, Sofa, TV, and other things you need in the house.

Cash Buffer

We don’t want to drain out all our savings to purchase a house, do we? Of course not. So, you’ll want to include cash buffer so at that by the end of all this, you have a house and still have some cash for emergencies.

I call this a Cash Buffer. The amount is up to you, but I recommend reserving at least 6 months of household expenses as liquid cash.

Another thing you can consider when thinking about cash buffer is the possibility of Cash Over Valuation (COV), which will need to be paid with cash and cannot be covered by CPF or loan. We don’t know whether this is needed or not until you’ve found the unit you want to buy.

I’ll cover this in more details in my next post.

Monthly Mortgage Repayment

Another thing you’ll want to look at is the monthly mortgage repayment and the current interest rate. Make sure the amount is comfortable to you.

You can use PropertyGuru’s Mortgage Repayment Calculator to estimate this. Typically, the loan tenure is 25 years. For example, borrowing $600,000 at 3.2% for 25 years yields a repayment of $2,908/month.

Calculating Your Estimated Affordability

Now, you can start estimating the price of the unit you can afford!

Taking into account the CPF OA Balance and the Cash on hand, you can subtract the anticipated expenses and cash buffer. This will give you the amount you can use for the downpayment of your flat.

Here is the general formula I use to calculate the available funds of down payment you can afford:

CPF OA + Cash on hand - Expenses - Cash Buffer

A down payment is typically 25% of the property price, so simply multiply the amount by 4 to get the maximum unit price you can afford. Also, make sure the loan is able to cover 75% of the price of the unit.

For example, you might have something like this in your CPF and bank account:

• CPF OA: $200,000
• Cash on hand: $160,000

Then, you might have estimated something like this for the expenses:

• Stamp Duty: $20,000
• Furnitures: $10,000
• Renovation: $60,000

Which brings your total estimated expenses to $120,000.

Then, let’s say you want to keep a Cash Buffer of $40,000 for the following:

• Emergency Funds: $30,000
• Possible COV: $10,000

Adding up everything, the estimated available funds for downpayment is $200,000 and thus, assuming you’re eligible for a $600,000 loan, we can estimate that the maximum unit you can afford is $800,000.

Phew that was a lot of text! I’ll stop here for now. Next time, I’ll cover how to I shortlist-ed the HDB I ended up buying.