Purchasing a home will be one of the biggest financial commitments you make so it important to understand what you can afford and the fees involved in completing a purchase.
- Upfront fees
These include the option fee once you have decided to buy a unit, which costs between $500 and $2,000 for units bought directly from HDB. Then there is the remainder of the down payment or initial deposit. This depends on the kind of unit you buy and if you have an existing housing loan. The minimum down payment for both HDB and private properties is 10%, of which 5% has to be paid in cash, cheque or cash order. The remaining amount of the down payment can to be paid with your CPF savings, if sufficient. There are also stamp duty and stamp fees and cost for engaging a property agent.
- What can you afford?
The Total Debt Servicing Ratio (TDSR) is the ratio between the percentages of your total monthly debt obligations to gross monthly income. Your monthly repayment installment for your home should not exceed the 30% of your household monthly income. If you have any outstanding debts, the 30% would be less. TDSR was implemented a few years ago to ensure that homebuyers purchase property that are within their means. Because all financial institutions are obliged to comply to the TDSR ruling, no banks will grant you a home loan with a monthly repayment that exceeds 30% of your monthly income.
- Using CPF to finance your mortgage
All that money that you’ve been accruing in your CPF account will come into play when you purchase your first home as you may use your CPF savings to pay for part of your property as well as to service your loan. Go to the CPF Board website and use the calculators to help you determine your withdrawal limits, how much you can afford and loan repayment tenures. CPF savings can be using to purchase your home. Also note that CPF can only be used for properties built on freehold or leasehold land with a remaining lease of at least 30 years.
- Figuring out your home loan amount
Also known as a mortgage loan, a home loan helps you buy a property. These are repaid on a monthly basis and have a minimum repayment period if 20 years.The amount of the loan you are eligible for depends on your TDSR. The HDB website and banks’ websites feature calculators that helps you estimate the loan amount you are eligible for. Note that your monthly payment once confirmed by the financial institution or HDB consists of a principal payment and interest payment. The amount of your monthly installment depends on how much you have borrowed, the term of the loan, the interest rate and how interest is computed. You can choose to service your home loan entirely via your monthly CPF contribution if the amount does not exceed the cap you can use from your CPF savings. You can also choose to service the monthly repayment by using both CPF and cash.
- What types of home loans are there?
Fixed rate home loans feature interest rates that are fixed for an initial period (for example, first 3 years) and followed by a floating rate. Floating or variable rates are tied to a referenced interest rate. While home loans provided by financial institutions normally have attractive home loan package promotions, do note that this rate depends on market forces. Some rates are determined by factors set by the bank, and rates may also be benchmarked against the Singapore Interbank Offered Rate (SIBOR), Singapore Swap Offered Rate (SOR) or interest rate paid by the CPF board on CPF Ordinary Accounts. If you are buying an HDB unit, you are also eligible for housing loan from HDB. The HDB concessionary housing loan interest rate is pegged at 0.1% above the CPF Ordinary Account interest rate. At the time of writing this post, the HDB Concessionary Loan rate is 2.6%. This figure is revised in January, March, July and October.