When Jimmy and Anna decided to get married, the first thing on their to-do list was to apply for an HDB flat. Like many Singaporeans, they wanted a home of their own to enjoy couple life.
Their first major decision was whether to buy a new Build-To-Order (BTO) flat from HDB, or purchase an HDB resale flat from the open market. After checking online, Jimmy and Anna found that they were eligible for both options. Their monthly household income of $8,000 was below the income ceiling. While there is no income ceiling for buying an HDB resale flat their monthly income qualified them to buy a flat directly from HDB.
Check your eligibility for buying an HDB flat and applying for an HDB housing loan here.
PRICE, LOCATION AND TIME
BTO flats are generally priced below market prices – that is, they are subsidised. However, they are usually located in newer estates. Jimmy and Anna would also have to wait about 3 to 4 years for their BTO flat to be ready. As they had planned to get married only the year after, they would have to stay with their parents in the short term.
With a resale flat, the couple could get their unit within months after the purchase, and at a location they prefer, which appealed to them. However, the price of the resale flat is negotiated between buyers and sellers. It may cost more and there could be substantial renovation costs if there is a lot of work to be done.
GETTING THE RIGHT FIT
Besides choosing between a BTO or resale flat, Jimmy and Anna had to plan for the longer term, so that the home they eventually choose would meet their needs for the future. When deciding on the size and condition of the flat, they considered the following:
- When are they planning to have children?
- Do they need to stay near their parents for mutual care and support?
- Do they foresee that their parents will move in with them when they are older?
- Will they need to employ a domestic helper?
Thankfully, regardless whether they choose a BTO or resale flat, there would be housing grants to help them.
If they are going for a BTO flat, they could also use the Staggered Downpayment Scheme
, which is available for first-time couples below 30 years old, to lessen the initial burden of the downpayment on a property.
What’s more, under HDB’s Deferred Income Assessment
scheme, young couples who fulfil certain eligibility conditions can apply for a flat first and have their income assessed nearer to their key collection appointment.BORROWING WITHIN YOUR MEANS
As Jimmy and Anna would need to take a loan to finance their HDB flat purchase, they proceeded to calculate what they could afford
. Buyers of new or resale flats can take up an HDB Housing Loan
of up to 90% of the flat’s purchase price. Since 10 May 2019, the eligible loan amount will depend on the credit assessment, the prevailing Loan-to-Value limit, the remaining lease of the flat they are buying, and other HDB policies applicable at the point of the application.
Flat buyers can also choose to take a loan of up to 75% from a private bank.
If they were using their monthly income to pay other debts, such as credit card payments and personal loans, it would reduce how much they could borrow for their home.
Fortunately, as Jimmy and Anna had only started working and did not incur any personal debt, they were not restricted by this limitation.
Apart from the housing loan, the couple also took into account other costs when planning their finances, such as administrative fees, stamp duties, legal fees and renovation costs. USING CPF WISELY
To help reduce their out-of-pocket expenses, Jimmy and Anna could use their CPF Ordinary Account (OA) savings to buy new or resale HDB flats.
Under new rules
unveiled in 2018, buyers can now choose to keep up to $20,000 in their CPF OA when they take a Housing Loan from HDB. Previously, buyers had to use all the funds in their OA to pay for their flat, before taking on an HDB Housing Loan.
This measure helps to ensure that couples like Jimmy and Anna have more funds for rainy days or retirement, even after a major purchase like a flat.
Besides using CPF for the 10% downpayment, Jimmy and Anna could use their CPF savings to pay for the monthly instalment of their housing loans. This would put less of a strain on their monthly cashflow.
However, the more they use their CPF savings for housing, the less they would have for their retirement. They had to consider the opportunity cost of not leaving more money in their CPF accounts to grow at attractive interest rates. As such, Jimmy and Anna had to think carefully about how they would use their CPF savings to finance their home.
Are you and your partner facing the same housing decisions as Jimmy and Anna?
Before you take the leap of buying your first HDB flat, remember to always buy within your means. You can do this by keeping your monthly housing instalment within 25 per cent of your gross monthly income. As this is a long-term financial commitment, it is important that your monthly housing loan remains affordable.
And while you’re at it, do try out Our First Home Calculator
to estimate the amount of housing loan you can take, as well as the property you can afford based on your income and ability to service the loan.Read more
about how the Total Debt Servicing Ratio (TDSR) and Mortgage Service Ratio (MSR) can affect your home loan.