Home Loans

Engaged and Waiting For Your Flat to Be Built? What You Need to Know About Your Home Loan

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Joanne Poh

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So everything’s going to plan. One of you successfully pulled off a tearjerking engagement, and you’ve found the perfect home…

…except that your home is now a construction site and will be completed only in three years’ time.

Buying uncompleted property is very common in Singapore, whether it means buying a BTO flat or a unit in a condo development.

And obviously, unless you were born to a tycoon, you need to take out a home loan to finance your property.

Here are six things you need to know about your home loan when your home hasn’t been built yet:

 

1. HDB loans currently have a higher interest rate than bank loans

It is certainly more convenient to get an HDB loan if you’re buying a BTO flat. No need to source for your own lawyer or bank loan, and legal fees are lower.

But you pay for this by incurring higher interest rates. That’s right, HDB loans are more expensive than bank loans with an interest rate of 2.6%.

At the moment, floating rate bank loans are the cheapest option. But even fixed rate loans offer better interest rates than HDB loans.

 

2. You may not even be eligible for an HDB loan

You may not even have a choice between an HDB loan and bank loan if you fall short of HDB’s regulations.

HDB loans are only open to couples consisting of at least one Singapore citizen, who’ve taken no more than two other housing loans from the HDB and with a gross monthly household income of not more than $12,000.

You are also not eligible for an HDB loan if you’re buying an EC or sold your private property 30 months ago or less.

 

3. You pay a downpayment of at least 10% for BTO flats

If you’re buying a BTO flat, you can get away with paying a smaller downpayment than your friend who’s buying a unit in an unfinished condo development. The downpayment for a BTO flat can be as low as 10% of the purchase price, as opposed to 20% for condo developments. That means you can borrow up to 90% of the purchase price, but only if you take an HDB loan. You still need to front 20% of the purchase price if you take a bank loan.

What’s more, couples buying BTO flats who are first-time applicants, at least one of whom is under 30, might be eligible for the Staggered Downpayment Scheme which enables them to pay this 10% or 20% downpayment in two installments.

Do note however that how much you’re allowed to borrow will also be limited by the TDSR. Your monthly total loan repayments (that includes student loans, car loans, credit card debt, etc) cannot exceed more than 60% of your gross monthly income.

 

4. Maximum repayment period

The maximum loan tenure for HDB loans is generally 25 years, or till you are 65 years old, so don’t overstretch yourself. You don’t exactly have your whole life to repay it.

For bank loans, on the other hand, you can have a loan tenure of up to 30 years.

 

5. What type of loan you choose can affect how much CPF money you use

When you take out an HDB loan, your CPF Ordinary Account will be drained to pay for the property, and HDB will then lend you the balance.

If you don’t want that to happen and prefer to keep your OA money for your retirement, you should either transfer it into your Special Account (note that that means you can’t touch the money at all until retirement) or opt for a bank loan instead.

With a bank loan, it’s up to you how much CPF money you want to use for the downpayment and loan installments.

 

6. When to start repaying your loan

When you start repaying your loan has nothing to do with whether you’re taking an HDB loan or a bank loan. Rather, it is linked to what type of property you have bought.

For HDB property, you only have to start repaying your loan when you pick up your keys. In other words, there is no need to pay until you can move in. If the builders take three years to reach that stage, you’ve got three years before having to start repaying the loan (and, uh, get married as well if you haven’t already done so).

Are you taking out an HDB loan or bank loan to finance your first home? Tell us in the comments!

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Joanne Poh

In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.