Buying a home is one of the most significant financial milestones in life. For first-time buyers in Singapore, the process can seem daunting due to the high property prices and various financial considerations involved. Nevertheless, with proper planning and disciplined saving, purchasing your dream home can become a reality. Here’s a detailed guide on how to save for your first home including tips on saving for a down payment, understanding housing loans, and other important financial aspects.
1. Setting Your Goal
Assessing Property Prices
Before you start saving, it's essential to have a clear idea of the property market in Singapore. Research different neighbourhoods and types of housing (Build-To-Order (BTO), resale HDB flats, new or resale private condominiums, executive condominiums (ECs)) to understand the price range of homes you are interested in.
Eligibility
Your eligibility depends on several factors, such as your age, income and whether you are buying the flat with another person. Check your eligibility for different property types first and the grants available then start searching: BTO, HDB resale or EC.
Determining Your Budget
Set a realistic budget for your home purchase based on your income, the down payment, monthly repayments and the tenure of the loan. This helps to ensure that your mortgage payments will be manageable and not strain your finances. In addition, consider whether you want to sell the property after the Minimum Occupation Period (MOP) and upgrade or rent it out for rental income.
Are you buying for investment or own stay?
If you are buying to stay, then consider the waiting time for a BTO versus your current situation. Though BTOs are more affordable, the wait is still a few years. If this timeline is not for you, head over to the resale HDB market instead. Either way, you need to apply for an HDB Flat Eligibility (HFE) letter through the HDB Flat Portal with Singpass.
If you are considering buying a HDB flat then a condo, do careful calculations as there is Additional Buyer's Stamp Duty (ABSD) for the second property on top of existing Buyer’s Stamp Duty (BSD). Speak to a professional real estate consultant if needed.
If you are considering buying a small condo for investment, the upfront cash is quite a hefty sum though the progressive payment scheme available for new launch condos breaks down the cost into manageable stages aligning with construction milestones.
Also from September 2022, the period that private residential property owners selling their homes had to wait out the market before they were allowed to buy public housing flats on the resale market was extended to 15 months with an exception for those aged 55 and above. Private property owners (PPOs) must wait out a period of 30 months after selling their private residential property before they can purchase a subsidised HDB flat, such as a BTO or a resale flat with the CPF Housing Grant.
2. Property Location
Location, location, location
Make a list of ‘wants’ versus ‘needs’ to streamline your search for a dream home in specific areas. For example, would you rather be close to your workplace or MRT or parents? Is renting an option while you wait for a new place? For those with children or planning to have kids, how big would you like your house to be? Staying near to parents may be more convenient but prices in mature estates could be higher too.
3. Saving for a Down Payment
Understanding the Down Payment Requirement
For HDB loans, you will need to pay at least 20% of the purchase price which can be paid in full using your Central Provident Fund (CPF) Ordinary Account (OA), with cash, or a combination of both. For bank loans, the minimum down payment is 25%, with at least 5% paid in cash and the remaining 20% in cash or CPF OA savings.
Creating a Savings Plan
Once you have a target amount for your down payment, develop a savings plan. Allocate a portion of your monthly income specifically for your home fund. Consider using high-interest savings accounts or fixed deposits to grow your savings more effectively.
Reducing Expenses
Cutting down on non-essential expenses can significantly boost your savings. Create a budget that prioritises essential costs and eliminates or reduces spending on dining out, entertainment, travel and shopping.
Leveraging CPF Savings
Your CPF OA savings can be used to pay for the down payment. Regularly contribute to your CPF account and consider making voluntary contributions to accelerate your savings.
4. Understanding Housing Loans
HDB Loans vs. Bank Loans
HDB loans currently offer lower interest rates (at 2.6%) compared to bank loans (from 2.88%). They also require a lower down payment. However, bank loans might provide more flexibility in terms of loan tenure and repayment options. Compare the benefits and drawbacks of both before making a decision.
Loan Eligibility
Ensure you meet the eligibility criteria for your preferred loan. For HDB loans, this includes citizenship requirements, income ceilings, and previous housing subsidies received. Bank loans require a good credit score and a stable income amidst other factors.
Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR)
The MSR caps your mortgage repayments at 30% of your gross monthly income, applicable for HDB flats and executive condominiums. The TDSR limits your total debt repayments (including the mortgage) to 55% of your gross monthly income. Understanding these ratios helps you determine how much you can borrow without overextending your finances.
You can also get an estimate of the loan amount that HDB or banks may offer you. This estimation will include your (and your spouse’s) gross monthly income and any existing financial commitments. An In-Principle Approval (IPA) from the bank will help determine the maximum loan amount you are eligible for.
5. Additional Financial Considerations
Extra Fees
Prepare for additional costs such as stamp duty, legal fees, agent’s commission fee if applicable, Option to Purchase (OTP) fees or cash over valuation. For example, the Buyer's Stamp Duty (BSD) is calculated based on the property’s purchase price or market value, whichever is higher. Budget for these expenses to avoid any financial surprises. There is also property tax payable yearly.
Renovation and Furnishing Costs
Factor in the cost of renovating and furnishing your new home. Start setting aside funds for these expenses early on to ensure you can create a comfortable living space without incurring extra debt. There might be more bills such as utilities, groceries, maintenance, and more, on top of the monthly mortgage to pay for too.
Emergency Fund
Maintain an emergency fund with at least 3 to 6 months’ worth of living expenses. This fund will provide a financial buffer in case of unexpected events such as job loss or medical emergencies, ensuring that you can continue making your mortgage payments without stress.
Saving for a home in Singapore requires careful planning and disciplined financial management. By setting a clear savings goal, creating a detailed budget, and understanding the intricacies of housing loans, you can make the journey to homeownership smoother and more manageable. Remember to consider all associated costs and maintain a healthy emergency fund to safeguard your financial future. With these tips and getting professional advice from real estate consultants if necessary, you will be well on your way to securing your dream home in the Lion City.
Master Your Finances Wisely,
Value Vaulter
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