It's no secret that buying a home is the biggest financial commitment that we will make in our lives. Even with subsidised housing in the form of HDB flats, finding that perfect place to stay is still the biggest purchase we'll ever make. To put it bluntly, unless you were born the only heir of a family business worth millions, you will need to take out a home loan to buy your HDB flat. But to ensure that everyone can afford a place to stay, those of us who are just starting out in our careers can rely on housing grants to further subsidise our HDB flat purchase.
You should always know how much housing grants you're eligible for. Here's why.
There are several reasons why it's important to check how much grants you can get, but this is the most important: Because you get additional money to help you with your first flat
And here's how much you can expect to receive if you're a couple looking to buy your first home:
The amount of Additional CPF Housing Grants and Special CPF Housing Grants you qualify for is based on your household's average monthly income. So, make sure you apply for the grant before you ask your boss for a pay raise.
You can also get up to $20,000 under the Proximity Housing Grant scheme if you choose to live with, or near to, your parents.
Of course, this is all just a short summary. Read this article for all you need to know to get the most out of your CPF Housing Grant (http://blog.moneysmart.sg/property/cpf-housing-grant-what-you-need-to-know-to-get-the-most-out-of-it/).
However, that doesn't mean you can use the grants without limitations. Firstly, the grant amount is credited directly to your CPF Ordinary Account, so you don't get it as cash. Secondly, you can only use it to offset your HDB flat's initial purchase, or for reducing the housing loan amount. You can't use it, for example, to pay your monthly loan instalments or to reduce your minimum cash downpayment (if you're taking a home loan from the bank).
You should thus also consider 2 areas when planning your house hunting: Where to buy and/or the flat size you can afford.
1. CPF Housing Grant helps you determine location
For example, you're looking to buy a resale flat as a couple earning $4,000. You're eligible for the CPF Housing Grant for Family of $30,000 and the Additional CPF Housing Grant of $15,000. That's a total of $45,000 in grants.
Because you can use the grant amount to offset the purchase price, this $45,000 could make the difference between buying a 4-room flat in Serangoon, where in the 3rd quarter of 2016, the median price is $425,000, and a 4-room flat in Ang Mo Kio, where the median price is $459,000. (Source: http://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/resale/resale-statistics)
2. CPF Housing Grant helps you determine flat size
Anyone who tells you size doesn't matter clearly wasn't referring to buying a home. Using the same example as above, a total CPF Housing Grant of $45,000 could make a difference in the size of HDB flat that you can buy in Hougang, where in the 3rd quarter of 2016, the median prices for a 3-room flat and a 4-room flat are $295,000 and $376,000 respectively—a $81,000 difference in price. Imagine if you can only afford a maximum of $350,000 at first, you will only be able to buy a 3-room flat. But with the CPF Housing Grant, you're now able to afford a 4-room flat instead.
That doesn't mean that you should buy a 4-room flat just because you can afford it. There are many other factors that should go into your decision. For example, you might want to factor in your commute to your workplace, or how easy it is for your parents and in-laws to drop by or vice versa. At the end of the day, of course, you should buy a flat that is within your means and doesn't cause you to live paycheck to paycheck.
With several CPF Housing Grants out there, make sure you know what the qualifying criteria for each are
Here are some other criteria for grants when buying a BTO flat:
It's also important to know exactly how your grants help you subsidise your flat purchase
As we said earlier, there are some limits to how you can use your grant:
If you're taking an HDB Loan, then you have the option to pay for your flat using your CPF savings. First, you will need a Home Loan Eligibility letter, or HLE, from HDB. Among other information, the HLE tells you how much you're eligible to loan from HDB and for how long.
Your initial payment is 10% of the purchase price, and you can use your CPF Ordinary Account savings (including the CPF Housing Grant) to make up that 10%. Then, everything that's left in your CPF Ordinary Account is wiped out to pay for the remaining 90%, and HDB will loan you the rest of the money, up to the amount specified in the HLE, if there's not enough in your OA. (Spoiler: It's not enough.)
If you don't have enough in your OA, and you've hit the maximum amount you can loan, then you will need to pay the rest of the outstanding amount in cash.
If you're taking a bank loan, you will need to pay at least 20% of the purchase price as a downpayment. Of that initial payment, at least 5% of that downpayment needs to be in cash. This doesn't change even if you're eligible for the CPF Housing Grant. However, you can use any CPF Housing Grant to offset the remaining 15% of your downpayment.
Here's a quick illustration to explain what we mean:
Rohaini wants to buy a 4-room resale flat that costs $500,000 with her fiancé. It will be their first flat and they are both Singaporeans. Together, they earn $7,000 a month. That means they are eligible for $30,000 in Family Grant but are earning too much to be eligible for the Additional CPF Housing Grant.
Currently, the lower but volatile interest rates of a bank loan seem preferable to Rohaini compared to the higher but more stable HDB loan interest rate. Choosing a bank loan means that she needs to make a downpayment of 20% or $100,000. Of this amount, $25,000 (or 5% of the purchase price) must be in cash, while the remaining $75,000 (or 15% of the purchase price) can be paid in cash or CPF.
Rohaini cannot use the $30,000 in grant money to offset her minimum cash downpayment and therefore pay nothing in cash. So, she and her fiancé still need to come up with $25,000 in cash.
However, the remaining downpayment of $75,000 (15% of the purchase price) can be in cash or drawn from their CPF accounts. They can now use the $30,000 in grants to offset this amount. Thus, they will only need to pay $45,000 in cash or CPF in addition to the $25,000 above.
This means it's still important to decide how to budget your finances. If Rohaini doesn't have $25,000 in cash on hand for the minimum cash downpayment, she probably shouldn't be buying such an expensive flat.
CPF Housing Grants go a long way to making your HDB flat purchase a bit more affordable, but you'll still need to plan how much you can afford to set aside for your house.
Does the amount of your CPF Housing Grant affect your decision to buy a new or resale flat?