Credit: PropNex Research, 99.co
Purchasing a property is expensive in Singapore. And it seems like getting more unattainable these days, especially with the property price surge in the past two years. If you think you need a million dollars to buy your property, you may be wrong. There are still ways you can go about to purchase your property in Singapore.
Thankfully, home loans are readily available in Singapore. Despite the lately rising interest rates, banks still offers attractive mortgage packages. For HDB purchase, the minimum downpayment is 15% which can be paid through your CPF Ordinary Account (OA). For private property, the downpayment is 25%, of which, 5% is payable through cash, and balance 20% through CPF OA or Cash.
To put things in perspective:
HDB Flat $450,000 purchase price -> $67,500 from CPF OA, balance can be borrowed from HDB Loan or Bank Loan.
Private Property $1.2million purchase price -> $60,000 cash, $240,000 from CPF OA, balance can be borrowed from Bank Loan.
How can you save up enough to buy a property?
Here are four basic strategies you can adopt:
Set aside money for a targeted investment plan
Consider making voluntary CPF top-ups
Maintain low debt before getting a home loan
Build an emergency fund of six months’ of your expenses
1. Put money into a targeted investment plan
With compounding interest, you can make a sufficient amount for the downpayment faster than you imagine. For an investment with returns of just about 5% per annum; If you invest around S$500 a month for 10 years, this will come to about S$80,000. This is enough to make the downpayment on a property that costs up to S$1.6 million. Now if you start at 25 years old; while still diligently contributing to your CPF monthly, you could have enough to afford the downpayment by the time you hit 35 years old.
The concept is leveraging on a targeted investment plan to deliver more or less a consistent amount, mature close to the target date that you intend to purchase a property.
2. Making voluntary CPF top-ups
Besides retirement, you can use your CPF OA monies for the down payment of your property, to pay stamp duties, and the monthly instalments for your home loan, regardless of whether you buy a condo or HDB flat. Take advantage of the guaranteed 2.5% interest rate the CPF OA offers.
So instead of splurging your year-end bonus on luxuries, you can make a lump sump contribution to your CPF instead. This will ensure that, when the time comes, you have enough CPF monies to cover a large part of your housing loan and downpayment.
3. Maintaining Low Debt before getting a Home Loan
When getting a home loan, you are subject to the Total Debt Servicing Ratio (TDSR). Your total debt obligations (including personal loans, car loans and your soon-to-be home loan) are capped at 55% of your monthly income; this restrict over-borrowing. For example, if your household income is $10,000 a month, your total loan repayments cannot exceed $5,500 when you take a home loan. Otherwise, you’ll have to borrow less.
Due to the TDSR, it’s important for aspiring home owners to keep debts low.
Not buying a car, until you bought a home.
Avoid revolving, high-interest debt. e.g make sure you pay back your credit cards in full, to avoid the 26% interest rate.
Aggressively pay down your debts in the 12 months before applying for a home loan.
When you have too much debt, it can worsen your credit score. This can result in the bank lending you less money, thus making your home less affordable
4. Build an emergency fund of six months of your expenses
Building this emergency fund is an essential step to owning property. If something goes wrong financially (e.g. falling ill and cannot work), you can still manage to pay the mortgage for six months. This will give you time to recover, find a new job, etc.
As a last resort, six months will give you sufficient time to sell your property at a fair price.
With careful financial planning, as well as saving and investing your money early, you can eventually buy your dream home. Your home is more than a shelter, it’s a reflection of your lifestyle and values, a place to express yourself and think big. You want a space to create, have family meals, wind down for the day, sing in the shower. Where’s is your living room? Let me help you find that!
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