How much money do you need to buy your first HDB flat?

This article was originally on GET.com at: How Much Money Do You Need To Buy Your First HDB Flat?

Here's a useful guide for all the Singapore citizens and PRs out there who yearn to have a home you can call your own but have no idea where to start. This guide is especially handy if you're looking to purchase a HDB flat.

Now, buying a flat isn't fuss-free and the information that you have to absorb can be indecently overwhelming. And you have to have sufficient money, of course!

For the purpose of making life easier for those of you who plan to get married and get your first flat soon, GET.com has done the hard work for you by researching the cost breakdown of your flat, the various home loans available, and sussing out key things you ought to know. Yes, you're welcome.

How Much Will Your Flat Cost You?

In this example, we'll be looking at a 4-room BTO flat in a non-mature area with a purchase price of $315,000. Let's say the applicants' median household income is assumed to be $5,000, they have exactly the amount needed for downpayment in their CPF Ordinary Account and they are taking up the HDB housing loan.

Here is a list of the fees and initial costs:

Application fee: $10

Option fee: $2,000 paid when you book the flat; will be reimbursed in cash when there's enough money in your CPF Ordinary Account to pay the downpayment.

Downpayment: 10 per cent of $315,000 = $31,500 from CPF Ordinary Account/cash savings. If you were taking a bank loan instead of an HDB Housing Loan then the downpayment would be a larger percentage.

Stamp duty for signing of Agreement of Lease: $4,500. This is how it works: the stamp duty sits at 1 per cent for the first $180,000 of the flat's purchase price, 2 per cent for the next $180,000 and 3 per cent for any remaining amount.

Stamp duty and legal fees during key collection: Lease In-Escrow registration fee of $38.30 (fixed amount), which you will need to pay if HDB acts for you in the flat purchase. There is also a survey fee of $275 (before GST) chargeable for a 4-room flat. Note that the survey fee varies depending on the type of flat you're purchasing.

Conveyancing fee: $201.60. This fee is calculated like this: you'll pay $0.90 per $1000 for the first $30,000 of the flat's purchase price, $0.72 per $1000 for the next $30,000 and $0.60 per $1000 for any remaining amount

Caveat registration fee: Fixed amount of $64.45, payable when you sign the Agreement of Lease.

Fire insurance: You will have to take up a fire insurance policy from Etiqa Insurance, the Insurance Agent appointed by HDB, if you're taking up the HDB housing loan. For a 4-room HDB flat, the premium stands at only $5.50 for a 5-year term (it insures a building sum of $69,100). More information can be found on Etiqa's website.

Home Protection Scheme: Annual premium of $173.22 for 22 years (computed based on loan amount of $283,500 and my own birth date).

Note: HPS is a mortgage-reducing insurance scheme administered by the CPF Board. It insures CPF members and their families against losing their home, should the policyholder become permanently incapacitated or pass away (before 65) before the housing loan is paid up.

You need to be insured under HPS if you want to use your CPF Ordinary Account savings to pay your monthly instalments. Also, the premium is paid annually using your CPF savings or cash. The premium amount depends on factors such as your declared percentage of coverage, loan amount, age, and gender.

You can also apply for grants to help you pay for your HDB flat purchase.

Grants: $5,000 (Additional CPF Housing Grant) + $40,000 (Special CPF Housing Grant) = $45,000.

According to HDB, here's how the Additional CPF Housing Grant and Special CPF Housing Grant are computed for those who are eligible.

Monthly housing loan instalment repayable for 25 years: It is estimated to be $1080 using HDB's current concessionary interest rate of 2.60 per cent per annum (p.a.).

In this scenario, 23 per cent of the applicants' household income of $5,000 will go to their CPF Ordinary Account, amounting to $1150. Notice that the amount in the applicants' CPF Ordinary Account monthly is higher than the estimated monthly instalment, hence they don't need to fork out any cash at all to service their monthly home loan instalment!

Note: that Mortgage Servicing Ratio is capped at 30 per cent of applicants' gross monthly income! You can use your CPF Ordinary Account savings and/or cash to pay the monthly instalments of your housing loan. The monthly instalments are payable on the first day of each month.

10 steps to buying your first home

  • Step 1: Check your eligibility and the affordability of the property - Citizenship - Family Nucleus - Age - Income Ceiling - Ownership in other properties
  • Step 2: Obtain an Approval-In-Principle Approval from the bank An approval-in-principle (AIP) is a conditional approval for your home loan.
  • Step 3: Search for your ideal property Now that you know how much you can borrow, you can continue your search for your dream home. Spend some time considering the property's location, type, size, price and affordability.
  • Step 4: Make an offer for the property you want
  • Step 5: Close the deal
  • Step 6: Decide on your home loan This is when you need to have an idea of the different kinds of home loans available.
  • Step 7: Finalise your loan application There are many documents and paperwork to prepare when taking a mortgage loan. Having a clean credit history definitely helps!
  • Step 8: Appoint a Lawyer You would need to engage a lawyer to act for you and the bank on your conveyancing matter for your home purchase and mortgage loan.
  • Step 9: Formal valuation of property The bank will appoint a valuer for a formal inspection of the property.
  • Step 10: Completion of your property purchase Upon the date of completion of your property purchase, your lawyer will call for the release of bank finances payable to the seller's lawyer.

How Will Costs Differ If You Take Up A 25-Year Bank Home Loan For The Example Above?

Downpayment: 20 per cent of $315,000 = $63,000; 5 per cent of this $63,000 has to be paid in cash while the remaining 15 per cent can come from your CPF Ordinary Account/cash savings.

Stamp duty and legal fees during key collection: Mortgage In-Escrow registration fee of $38.30 (fixed amount); paid if the bank acts for you in the flat purchase + a survey fee of $275 (depending on the type of flat).

Monthly housing loan instalment repayable: With a loan amounting to $207,000 (after clearing the 20 per cent downpayment and getting the same grants awarded in the example above), the estimated monthly instalment sits at $877 computed with a generic bank interest rate of 2.0 per cent p.a. for the first two years in a bank's fixed rate package.

In case you're wondering, you may also refinance your bank home loan though you have to keep abreast of market conditions, weigh your pros and cons, and keep a lookout for the right time to get your refinancing game going!

Banks' interest rates fluctuate with the market. So do your math and gauge your risk appetite to see if you'd prefer to stick to the concessionary interest rate the HDB home loan offers, or take advantage of interest rates that vary according to market conditions. There are plenty of different options for you to pick from!.

With the choice of picking either a HDB home loan or a bank home loan, it'll be really useful to find out which type of home loan is better for you!

Things You Ought To Know

Eligibility To Purchase A Flat

You can't fool the system into letting you own an HDB flat if you don't have what it takes.

The above is an overview of the eligibility conditions that you have to fulfil if you want a home you can call your own. You must be working and earning enough, of course.

Current CPF Contribution Rates:

The above image shows the current CPF contribution rates according to the employee's age (for private sector employees and public sector non-pensionable employees). Others are available on CPF's website.

Current CPF Allocation Rates:

The above image shows how the CPF allocation rates change according to one's age.

Notice that payments that come from your CPF account can only trickle down from your Ordinary Account. The percentage of our wage nestled in CPF that's allocated to the Ordinary Account reduces as we age, so that's something to consider if you're buying your first flat at a later age.

Downpayment: 10 per cent of the flat's purchase price if you're taking up the HDB Housing Loan. This can be paid with your CPF Ordinary Account savings and/or cash. The downpayment will be 20 per cent of the flat's purchase price if you're taking up a bank housing loan. In this case 5 per cent must be paid with cold hard cash while the rest can be paid with your CPF Ordinary Account savings and/or cash if you're borrowing under a loan ceiling of 80 per cent.

First-timer privileges: According to HDB, first-timer privileges include higher proportion of flat supply, more ballot chances, additional ballot chances for unsuccessful attempts and the possibility of staggering your downpayment.

Under the Staggered Downpayment Scheme, you can split your downpayment into 2 separate instalments. Half of the downpayment is paid when you sign the Agreement for Lease while the remaining amount is paid during the key collection for your new flat. Check if you're eligible on HDB's website!

Total Debt Servicing Ratio (TDSR): Capped at 60 per cent of the applicant's gross monthly income, this is the maximum percentage of your total monthly debt obligations (including the monthly repayment for the property loan that you are applying for and all your other repayment obligations such as student loans, credit card debts, car loans, personal loans etc) to gross monthly income.

Mortgage Servicing Ratio (MSR): Capped at 30 per cent of applicant's gross monthly income, this is the maximum amount that can go into home loan repayments.

Grants: If you are applying for a flat as a first-timer household, you may be eligible for the Additional CPF Housing Grant and/or Special CPF Housing Grant. The above 2 grants may apply to other applicants in other categories or schemes, too.

The newly rolled out grant includes the Proximity Housing Grant. The Step-Up CPF Housing Grant is available to eligible second-timers applying for a second subsidised HDB flat to help offset their cost in upgrading from a 2-room flat to a 3-room new flat in a non-mature area. There are many other grants available, so it's always good to know which ones you're eligible for.

Home Loans

For those of us who need to take up a home loan when we purchase a flat, you have the option of taking up HDB's home loan or practically any home loan that banks offer.

HDB's current concessionary interest rate of 2.60 per cent p.a. stands for your entire loan tenure whereas the rates that banks offer are usually more competitive variable and fixed rates.

4 tips on paying for your first home

  • Financial advisers say you should plan your housing budget carefully before choosing your home and not the other way around.
    There are many tools available out there which first-time home buyers can use to plan their purchases.
  • For example, Mrs Nyang-Ngiam said, "they can make use of Our First Home Calculator available on the CPF website to assess the type of housing they can afford based on their income and ability to service the loan".
  • The experts also urge would-be buyers to consider the full range of costs and monthly bills prior to purchase.
    "Once you own the property, you will also incur other regular costs like utility bills, conservancy fees and management fees if your property is a condominium with facilities like a swimming pool, gym and tennis court," said Mr Vasu Menon, vice-president of wealth management in Singapore at OCBC Bank.
  • Saving for the down payment could take several years for most people, given the steep rises in property prices in recent years.
  • Property down payments for first-timers could range between 10 per cent and 20 per cent of the purchase price, depending on whether you buy an HDB flat or a private property and whether you finance this using an HDB loan or a bank loan. "Save at least 10 per cent of your income each month and do this before you even start spending," said OCBC's Mr Menon.
    He added that home buyers will need to build up a pool of funds through savings and investments.
  • One common question is whether to get an HDB loan or to borrow from the bank. They have their pros and cons.
    For instance, a bank loan requires a cash down payment of at least 5 per cent while an HDB loan allows full financing of the down payment using just CPF funds.
  • HDB loans tend to offer better interest rate stability, as the rate is pegged at 0.1 percentage point above the prevailing CPF interest rate. Thus, they provide relatively more stability than even a fixed-rate mortgage whose rate is fixed for only a certain number of years.
    But HDB loans also come with certain eligibility conditions.
  • Home buyers should also evaluate the impact of regulations on their financing options and costs, say the bankers.
    Some may still be unaware of - or do not understand - the total debt servicing ratio (TDSR) framework for property loans that was introduced last year, noted UOB's Ms Chia.
    The TDSR caps a borrower's monthly total debt repayments at 60 per cent of his gross monthly income.
  • A key financial consideration at this juncture is the outlook for interest rates, say the experts.
    "While rates are low for now, remember that they may rise in the coming years," said OCBC's Mr Menon. "When rates do increase, your monthly instalments will rise, and you should assess if this will pose a burden before deciding on the amount of loan you plan to take and the package you wish to sign up for."
  • Home buyers should also set aside sufficient funds to meet rising interest rates and any unforeseen circumstances.

    UOB's Ms Chia pointed out that for every one percentage point rise in the interest rate, the monthly instalment will rise by about $250 for a $500,000 loan stretched over 30 years.
  • To ensure financial liquidity, it is also prudent for home buyers to maintain 18 to 24 months of monthly instalments in their bank accounts, she added.

1. HDB Housing Loan

Eligibility: Besides requiring at least 1 buyer to be a Singaporean and the average gross monthly household income to be not more than $12,000 for families, there are other eligibility criteria that you have to fulfil in order to get an HDB home loan.

Loan amount: Up to 90 per cent of the purchase price of your flat.

Maximum repayment period: Capped at 25 years, or up till the buyer is 65 years old, whichever is shorter.

Interest rate: It is currently 2.60 per cent p.a.; the HDB concessionary housing loan interest rate is pegged at 0.10 per cent above the CPF Ordinary Account interest rate. It is revised in January, April, July and October, in line with the revision of CPF interest rates.

Repayment: It can be done via your CPF Ordinary Account savings and/or cash to pay the monthly instalments of your housing loan. The monthly instalments are payable on the first day of each month.

Using CPF savings: You must use all the available savings in your CPF Ordinary Account for the purchase of the flat, before a housing loan from HDB is granted for the remaining amount. This is subject to the CPF withdrawal limits for properties with less than 60 years of lease remaining.

2. Bank Housing Loan

Eligibility: You can choose to finance your flat with a housing loan from a bank that is regulated by the Monetary Authority of Singapore (MAS).

You may also opt for this if you and/or the essential occupiers are not eligible for an HDB Housing Loan. Also, you will not be allowed to refinance your flat with a housing loan from HDB if you pick this option.

Besides attractive interest rates, home loans offered by banks may come with other value-adds such as legal fee subsidy, free valuation and free fire insurance. Make sure to read through and understand the accompanying T&Cs carefully before you commit to a loan!

Loan amount: Up to 80 per cent of the purchase price of your flat.

Maximum repayment period: Capped at 30 years for HDB flats.

Interest rate: Varies accordingly. Banks offer different types of home loan packages including fixed rate home loans and variable (floating) rate home loans.

All information is accurate as of January 4 2016.

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