In the property market, it’s taboo to tell a buyer to wait. The industry advice is to buy as soon as you have the money, as if houses were a lot less permanent than they appear. Any time is a good time to buy. Granted, it also means your property agent gets his commission earlier, but I’m sure that’s just coincidence. Well believe it or not, property agents have actually been wrong about property (shocking news, I know). In this article, I’ll examine the 5 signs that you’re truly ready:
1. You Have an Emergency Fund
I don’t mean you have insurance, or that you have the money invested somewhere. You need to have an immediately accessible source of cash, comprising about three to six months of your income. This has to be set aside as an emergency fund.
In Singapore, home loans do not have a perpetual fixed rate. Most fixed rate packages last about three years, and even a five year fixed rate is uncommon. After that, the loan reverts to a floating rate. Sooner or later, every home owner has to deal with interest rate fluctuations. And there’s no telling when the rates may go up, possibly adding thousands of dollars in repayments.
Likewise, loan repayments take a chunk out of your income. If you’re not renting out the property, you’d best be ready for cash-flow issues. If an emergency occurs, trying to extract a dollar from your property asset is like trying to remove salt from soup.
2. You Have Approval in Principle
Have you ever eaten at a restaurant, then suddenly realized you didn’t bring enough cash? House-hunting without approval in principle (AIP) is just like that; except instead of washing plates in the back, you end up losing a few thousand dollars.
When you try to buy a house, you start with a booking fee of 1%. So a $1 million house has a booking fee of about $10,000.
Then you have about 14 to 30 days to pay the rest of it. During this time, you need to convince a bank to lend you the money. If you can’t, maybe the sellers or agent will let you have a glass of their champagne. You would have paid them the booking fee for no reason. It’s forfeit. Big party at their place tonight.
You can prevent that by getting AIP before house hunting. The AIP states, in black and white, how much money a bank promises to lend you. It’s free; just drop by any bank and ask for one.
3. You Don’t Need Credit for the Down Payment
A bank can finance 80% of your home. HDB can finance up to 90%, because what better way to justify ministerial salaries demonstrate that our government cares.
Either way, this means you’ll need 10% – 20% as down payment. This money should not come from another credit line. I can’t stress this enough: Never take a personal loan to pay the down payment on your house; if you can’t afford it, then either wait or find a cheaper place.
If you take a personal loan, you’ll be paying two sources of interest for one house. This eats into your capital gains, and your profit margin will be lower upon resale. Also, a personal loan tends to come with high interest; the debt will grow faster than the value of your house.
This is a common mistake amongst young couples who are impatient to get a bigger flat, or want to get a condo straight away.
4. The House Won’t Wipe Out Your CPF
Yeah, yeah, I know the arguments. It’s not really your money, it stands for Curi (steal) People’s Funds, you’ll be dead before you get to spend it, etc. All the reasons why, given the opportunity, Singaporeans will spend as much of their CPF as possible.
The temptation is especially strong when it comes to housing. But before wiping out most of your CPF, think about your retirement: If you plan to eventually sell the house and downgrade, then maybe you can go ahead and empty your account. Otherwise, what sort of long term plan do you have?
The CPF might be pathetic against inflation; but do you have another investment that beats 2.5% growth? If you don’t, then re-think your purchase. There’s no need to take the biggest possible HDB loan just because you can.
5. You’ve Checked The Market History
It is not true that any time is a good time to buy property. There is a wrong time; and that time is at the peak of the property bubble.
If you enter the property market at the peak, you could end up buying high and selling low. You want to enter at the point where the market is bottoming out; when agents and developers find they’re unable to sell, and start lowering prices.
How do you check the market? Well you could be following us on Facebook, since that’s the kind of thing we talk about. Or, you can guess the bubble is about to pop when:
- There’s new of falling prices and falling volume of sales (at the same time, or it doesn’t mean much)
- Large numbers of “sandwich” class HDB flats start appearing (like ECs)
- The government imposes or considers cooling measures
- Banks start getting creative with home loan packages, because homes are becoming unaffordable (maybe by adjusting loan tenures or interest rates)
Gee, all of that sounds suspiciously familiar.
Anyway, you should know the recent history of the district you’re buying in, back about five years. Doing your homework will prepare you to haggle prices.
On top of all this, be sure to scout around for the best home loan. Knowledge of the home loans market is just as important, and more easily acquired. Just hit one of the free sites, like MoneySmart.
Image Credits:
alantankenghoe, RambergMediaImages, lumaxart, fechi fajardo, 401(K) 2012, Denis Bocquet
Are you ready to buy a house? How do YOU decide? Comment and let us know!