Whether you’re a young professional renting your first flat or experienced homeowner considering a new home purchase, it can be hard to know how much money to spend on housing. In this article, we outline some basic guidelines to help you estimate how much you can afford to pay for your home.
General Rule of Thumb: Housing Costs Should Not Be More Than 30% – 40% of Income
Experts typically suggest that you should spend no more than 30% to 40% of your gross monthly income on housing. These limits are designed to allow room for expenses for basic necessities such as food, transportation, health care and personal savings.
It is important to note that these suggested housing budgets include rent and mortgage payments, as well as other related housing costs such as utilities, maintenance or homeowners insurance. For an individual earning S$50,000 annually, this translates to S$1,250 to S$1,667 per month for housing costs.
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Tips for Renters: How to Live Within Your Budget
These guidelines may seem very tight to renters in Singapore as rent can easily exceed such a budget. However, there are many ways to keep your rent costs at manageable levels.
First, it may be necessary to live in a less expensive neighborhood. While the median price of a 3-room HDB in Central in the third quarter of 2023 was S$3,080, renters could consider living further from the city centre where median rents can be as low as S$2,300 for the same sized apartment.
Alternatively, you could consider downsizing. For example, median 2-room HBDs in Punggol and Bukit Merah are 12.5% and 21.6% cheaper than the median 3-room HDB in their respective neighborhoods. Additionally, if you feel comfortable sharing an apartment with a friend, moving in with a roommate can cut your housing costs in half.
Tips for Homeowners: Don’t Forget About the Total Cost of Homeownership
On the other hand, homeowners might find that the guidelines above leave them with little wiggle room to meet their required home loan payments. For example, monthly payments for a S$500,000 home loan with a 25 year tenure in 2024 tend to range from S$2,400 to S$2,600. We caution homeowners to also make some additional considerations on top of your monthly mortgage payment before setting out to buy your first home.
First, it is important to have saved up enough money for a down payment, typically about 25%, before purchasing a home. This is worth mentioning because many individuals may earn enough to make mortgage payments, but still not have enough personal savings to make a sizable downpayment plus any stamp duties payable. It is also important to consider other costs associated with homeownership. For example, the cost of electricity, home insurance, property tax and home maintenance could easily add up to almost a thousand dollars a month for an average household.
|Estimated Monthly Cost
|Maintenance Costs (estimate 1% of home value annually)*
|* Assuming HDB property value of S$600,000, with an Annual Value of S$40,000 for tax purposes, estimated monthly costs accurate as of Feb 2024
Summary Thoughts: Every Budget is Different
In the end, 30% is simply a number to help give you an idea of how much you can afford to pay for your home. There will always be exceptions to the rule. For example, recent graduates with a significant amount of student debt will need to keep their housing budget low enough to make their loan repayments. On the other hand, high income individuals that are purchasing a second home as an investment might be able to spend more than 30% of their budget on housing.
Individuals can always use the 30% – 40% maximum as starting point for their housing budgets and adjust accordingly based on their other primary expenses. If you are a prospective homeowner looking to compare the home loans to gauge your housing costs, check out our round up of the best homes loans on the market right now!
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