In this post I’m going to share the FIRST step you must take in order to purchase a $1 million property. You must be wondering why $1 million? Actually I just need a figure for easy illustration in the calculations that follows 😉
In order to purchase your dream property, firstly you need to assess your AFFORDABILITY. In order to have an official assessment of your affordability, do approach your banker to have your AIP (Approval in Principle) done.
Using an example with John being the purchaser and his profile as described below.
- 35 years old Singaporean
- Full time employee
- Salary $6,000 per month
- No debt obligations
- No existing property ownership
Based on John’s profile and applying the TDSR (Total Debt Servicing Ratio) framework mandated by MAS, John is able to afford a $1 million property. The TDSR framework limits the purchaser’s mortgage repayment threshold to 60% of his income.
The maximum loan he can take up based on 75% LTV (Loan to Value) is $801,702. Therefore the maximum property purchase price for him will be just over a $1 million (to be exact at $1,068,936).
As John is a full time employee, banks view his income as more stable compared to a self-employed person. Say if John is a self-employed person, his affordability will be lower as his assessable income is subjected to to a 30% “haircut”. In that case, he will only be able to purchase a $750,000 property.
It is important to note the variables that will affect your affordability. These factors are age, debt obligations and existing property with unredeemed loans.
Hope the above simple illustration will guide you through your first hurdle towards property ownership.
Till then, take care!