What Do You Need To Pay For?
Buying a home is probably the biggest financial commitment for most Singaporeans. It is a long-term commitment which should be carefully planned.
Before you start looking for a home to buy, first work out what you can afford as well as find out what you need to pay for. What you can afford depends on your current income, existing debt obligations and expenses, available savings as well as the loan amount you are eligible for.
Buying a home involves making some upfront payments, as well as monthly payments such as your housing loan instalments and conservancy charges.
- Option fee
- Initial deposit / down-payment – how much you pay and the amounts payable in cash and from CPF savings depend on the value and type of property you buy, whether you have an existing housing loan (please see table below), as well as the tenure of the loan you intend to take
- Stamp duty on purchase (Please refer to the IRAS website for information on stamp duty)
- Legal cost, including stamp fees
- Agent or salesperson’s commission and fees (Refer to CEA’s consumer guides to find out more)
- Other miscellaneous costs
What can you afford?
Make sure you buy a home that you can afford in the long run.
To work out what you can afford, list the available resources you have to fund the upfront costs, as well as to pay ongoing mortgage payments and other expenses related to owning a home.
Ongoing expenses like property taxes, fire and mortgage insurance, conservancy and management service fees, cannot be paid for using CPF savings. Hence, you need to set aside sufficient cash for these monthly payments, in addition to meeting your current monthly living expenses and existing financial commitments. If you are taking up a floating rate loan, it is also sensible to have some buffer for possible interest rate rises in the future which could result in higher costs for you.
Also note that your lender may ask you to pay off some of the outstanding loan should the value of your property fall and the original loan to value ratio is exceeded. You may have to dip into your savings for this purpose.
Avoid using all your CPF savings to finance your home. From the age of 50, there will be reduced contributions to your CPF Ordinary Account. This may affect your loan repayment ability, so it is advisable to finish paying off your housing loan before that.
Your available resources could be:
- Cash savings (to meet upfront payments to buy your home and also to keep up with monthly payments in the event of income loss)
- CPF Ordinary Account savings.
- Sales proceeds (net of outstanding loan) from your current home, if any.
- Your income – do you have a steady income or is it commission-based and dependent on other factors?
The Total Debt Servicing Ratio (TDSR) is the percentage of your total monthly debt obligations (including the monthly repayment for the property loan that you are applying for) to gross monthly income. Monthly repayment instalments for all property loans (i.e. for the purchase of or otherwise secured by residential or non-residential property, located in or outside Singapore) and other debt obligations should not exceed a TDSR of 60%. Do note, for loans taken from banks and HDB to purchase HDB flats, the monthly repayment instalment for all property loans cannot exceed 30% of a borrower’s gross monthly income. Even if you are eligible for a bigger loan, do not take it up unless you are sure you will have the resources to fund it.