Property Soul has come up with a rather nice article that lets you determine whether you can afford a dwelling and whether you are paying right for it.
He cites the 3-3-5 Rule which de-construct to:
1. Your initial capital should be 30% of your property price
This is rather prudent, in that you are paying down a good chunk of the dwelling to avoid being overleverage by a large mortgage. For a single, if you have 250k, this section you can afford a 250/0.30 > 833k dwelling. Sweet.
2. Monthly Mortgage Payment Less than 1/3 of your Salary
The total debt servicing ratio (TDSR) means that the total debt of a couple or single wanting to purchase a dwelling cannot be more than 60%. This rule goes even further, by stating that you should not use more than 30% of your gross salary (pre tax) to service your mortgage. If my salary is 3.5k per month, i can only afford $1,166 monthly mortgage payment. This means at most i can take out roughly $250k in HDB mortgage or $230k in Bank Mortgage. I would need to use more cash.
3. Purchase a dwelling that is no more than 5 times your annual income
This filter ensures that you do not pay for an overly expensive place. The problem i find is that if you are a single, you have lower income, this might not be a good gauge that you are buying with good value. Perhaps a median couple combine income would be a better judge.
So if a couple combine income is $10k, this translates to $130k approximately. They should pay less than $650k for their dwelling.
Well, looks like no one should buy a condo at all, perhaps if your combine salary is $260k then.
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