Cancelling your HDB BTO application: What are the consequences?

This article was originally on GET.com at: Cancelling Your HDB BTO Application - What Are The Consequences?

Our uniquely Singaporean way to make a marriage proposal here is to apply for an HDB flat with our spouse-to-be.

While most Singaporeans have no issues with this method, you should also take a moment to understand what consequences you would face should the relationship sour before collecting the keys to your new flat.

At the moment, the wait for a Build-To-Order (BTO) flat to be ready ranges typically from 2 to 3 years.

Objectively, within this time period many things can change in a relationship, so it'd be wise to consider the consequences should you decide to pull out of your application.

Of course nobody wants a messy break up, but with the stakes getting progressively higher as the application procedure drags on, it is useful to know what a couple is getting themselves into before signing on the dotted line at the HDB hub.

Here are the consequences of cancelling your application and what you stand to lose:

Before Signing The Sales Agreement For Lease

This involves steps from filing a BTO online application to putting down your first deposit.

The initial stage of submitting an online application costs just $10 and you have not been called up by HDB to select a flat yet.

If you decide to pull out at this stage, the degree of financial risk is deemed to be the lowest.

What You Stand To Lose At This Stage:

- The $10 application fee, plus a marked record by HDB as it has considered you to have rejected a chance to select a flat.

- Your first-timer privilege will be revoked for a year if you reject again (you have 2 chances to reject).

- For first-timer married couples (family unit), previous unsuccessful applications that had earned them a higher priority will be reset to zero.

5 money traps couples fall into when buying their first property

  • Thanks to the government's slew of cooling measures, among which are capping MSR at 30 per cent for HDB flats and TDSR at 60 per cent for all properties, you should find yourself unable to seriously overextend yourself even if you are tempted to.
  • - Staying home to look after children may potentially half your income. - Interest rates are at rock bottom currently but they will most definitely go up. - Property prices are not at fire sale prices.
  • The ABSD will not last forever, but your property may (especially if it is freehold). One must remember they are one of a set of cooling measures to rein in property prices and keep them affordable for first-time property buyers.
  • However, if property prices were to start tanking significantly, it is likely that the current measures, including ABSD, will be relaxed layer by layer, like peeling an onion. After all, it is to no one's benefit for the single largest asset owned by most of us to depreciate.
  • Refinancing later on comes with many risks, including the interest rate environment then, your employment situation then, the state of the economy and property market then (affecting the valuation of your homes) and government/banking policies then (which affect whether legal subsidies can be given by banks).
  • Even if the initial rates are 0.1 per cent higher than the other bank's, what you'd want to ensure is that the rates after the initial years are competitive, in case you are unable to refinance to your advantage when the lock-in period is over.
  • It may be tempting to buy a 500 or 600+ sq ft condominium unit at less than S$1million, especially for professionals or HDB dwellers looking to buy an investment unit.
  • Do keep in mind the thousands of units coming into the market over the next few years, which means that it may not be easy to rent out or sell your unit at a profitable price. This while it locks up your 'quota' for property ownership with ABSD and punitive financing quantums for subsequent property purchases.
  • An old property on a 99-year lease is simply what it is, an old property with a shorter life span. One should always assume that the value of the property will be zero at the end of the lease and ask ourselves if we are comfortable paying the amount for the remaining lease.
  • If you are contemplating marriage and buying your first property in the foreseeable future, it is good to use the above as a checklist to have the necessary discussions with your significant other before making the largest purchase of your life.

After Booking A Flat (Before Signing The Sales Agreement For Lease)

If you moved on to the next phase, you would have already booked a flat and placed a deposit (option fee) amounting from $250 to $2000, depending on the size of the flat you have chosen. This fee will go to the cash portion of the downpayment you will pay for the flat.

Here's how much you will pay depending on the type of flat:

- Studio apartment: $250

- 2-room flat: $500

- 3-room flat: $1000

- 4/5-room flat and executive flat: $2000

What You Stand To Lose At This Stage:

If you cancel your application at this stage you will lose the option fee and you will be banned from applying for another flat for one year.

After Signing The Sales Agreement For Lease

After signing the Agreement for Lease, applicants are required to pay a downpayment. The amount of the downpayment that you will pay will vary depending on the type of home loan you're taking.

If you're not getting a loan or if you get an HDB loan: the downpayment must be 10 per cent of the purchase price. You can use your CPF OA to pay for the entire downpayment if you have enough savings there. If you don't have enough, then you must pay the remaining amount in cash.

If you're getting a bank loan there are more options:

- You will pay a 20 per cent downpayment (of the purchase price) if you have an 80 per cent loan ceiling. You will need to pay 5 per cent of the downpayment in cash and you can pay the rest of it with the savings in your CPF OA.

- You will need to pay a 40 per cent downpayment of your loan ceiling is 60 per cent of the purchase price. You will need to pay 10 per cent of the downpayment in cash and use your savings in your CPF OA account to pay the rest of the balance.

- If you have a loan ceiling of 50 per cent or less, you will need to pay the remaining percentage of the purchase price as the downpayment. You need to pay 20 per cent in cash, and another 5 per cent in cash upon key collection. The rest of the balance needs to be paid with your CPF OA savings.

There are also other fees involved such as stamp duty and legal fees which range from 1 per cent-3 per cent of the purchase price.

Any cancellations at this stage will result in a forfeit of this money, plus a one-year ban for another BTO application.

Other points to consider at this stage are the procedures involved with repaying the additional grants that were taken up from the government and the penalty fees payable in cases where applicants had taken up a bank home loan.

In the case of Executive Condominiums and DBSS applications, applicants stand to lose up to 25 per cent of the booking fee if they have not yet signed the Sale and Purchase Agreement, and 20 per cent of the purchase price and the stamp and legal fees if they've already signed the Sale and Purchase Agreement but have not yet collected the keys.

So the better plan is probably to spend some time in the relationship and assess if your current partner is really 'The One' before going all out and purchasing a flat together. After all, marriage should be one of the most important decisions of your life.

If you do decide to and purchase a flat, here you can find out what documents you need for your HDB loan application.

Before getting a loan you may also want to check if you're eligible for an HDB grant! Read a simple guide to HDB flat grants here.

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