Last year (2020) saw us battling with Covid-19, circuit breaker, job insecurity, cashflow fears, recession and who knows what else.
As a result, some of us may have put big plans on hold, such as getting married, starting a family or making the leap to finally become a homeowner.
But in 2021, it’s time to ride the Ox by its horns — you, like many others, want to realise your dream of finally having a place of your own.
Before you take the plunge, do you know what it takes to buy a home in Singapore, especially in this new normal? It’s good to be kiasu (afraid to lose) — when getting such a big-ticket item, you must do things properly. Here’s what you need to know:
The property situation right now
Even if you held off buying your home last year, you probably still kept tabs on the property market. As expected, the impact of Covid-19 and Singapore’s circuit breaker period meant that property sales dipped at the pandemic’s peak — what with in-person property viewings being halted (though it went digital), temporary closure of the HDB sales office, and so on.
Headache, right? Not to mention the financial uncertainty (a mortgage is probably the largest loan you’ll ever take, though it can be lowered).
But because there are people who either needed to get a home ASAP or saw some opportunity in the property market (as home loans interest rates fell), there was a lot of pent-up demand. So when the circuit breaker restrictions were eased, everyone rushed to buy their homes.
Although there have been construction delays (which resulted in more folks gravitating towards resale homes), HDB is looking to roll out 17,000 Build-to-Order flats this year, and private developers will continue with their new launches, though fewer than in previous years.
Smart moves to realise your home goals quickly
Owning a home can be a BIG responsibility (as well as an expensive one), so it’s important to start your home ownership journey on the right foot. To ensure that you can realise your home goals quickly and as smoothly as possible, take note of these smart moves:
1. Know how much you can afford
Buying a house is more than just looking at the listed price and dividing it by the number of months you’ll be paying the home loan for.
You’ll need to factor in other costs and fees, such as the application fee, option fee, downpayment, stamp duty, legal fees, insurance premiums (Home Protection Scheme for HDB flats, fire insurance, home contents insurance), cash over valuation or COV (any cost in excess of the bank’s valuation), and of course total interest payable. There may be more fees involved, such as agent fees or registration fees.
That’s why you need to consider how much you have on hand (includes Central Provident Fund or CPF monies, and cash), as well as the payment methods for the various costs and fees, before you can know how much you can truly afford for your property.
In addition, you may also need to check on the following:
- Mortgage Servicing Ratio or MSR — this is capped at 30% of all borrowers’ gross monthly income. The calculation of your MSR is based on your loan amount and combined monthly gross income
- Total Debt Servicing Ratio or TDSR — this was implemented by the Monetary Authority of Singapore to prevent people from over-stretching themselves by borrowing too much money to finance home purchases
The maths involved is quite complex, but thank goodness for technology and online calculators! Check out these nifty home loan calculators from POSB that can help you out.
Jane and her husband plan to buy a HDB flat. After paying all the relevant costs and fees by cash/CPF, the loan balance is $300,000. They opt for a 25-year home loan tenure and manage to lock in a mortgage interest rate of 1.48% p.a. for the first 5 years with a bank (because HDB’s interest rate is currently higher at 2.6% p.a.). Here’s what their monthly instalments look like for the first 5 years:
As both Jane and her husband are working full-time and drawing a salary of about $3,500 each per month, this monthly mortgage falls within their budget.
2. Know what you’re looking for in a home
Once you’ve more or less determined your budget, this will inform the type of home you can afford, along with its location, size, features, amenities and so on.
For instance, if you can only afford to pay $300,000, you definitely can’t buy a private property, let alone a bungalow. And with $300,000, that’s maybe a small and older resale flat in a mature estate, or a larger one in a non-mature estate that has fewer amenities.
With your housing budget, it helps you manage your dream home expectations and realistically determine the parameters of your family nest.
However, if you’re able to afford a private property, do consider if you’re over-stretching yourself, and if you really want to hit the ceiling of your housing budget. To be honest, I’d rather opt for a cheaper home to have more monies (cash/CPF) for myself! But it’s totally up to you. Because, #goals.
3. Choosing the right home loan
Frankly, with home loan interest rates currently low, most of the banks in Singapore offer largely similar interest rates (need to stay competitive, which benefits us customers!).
But that doesn’t mean you should skip into your nearest bank and take out any home loan just to check one item off your home-owning to-do list. Be sure to scrutinise all the fine print, check for any additional fees, lock-in periods, etc.
And do keep an eye out for synergies, especially if you already have an account (savings, credit card, investment or otherwise, with the same bank.
For example, the POSB Enhanced HDB Loan offers a variety of packages for various needs, with the following benefits:
- Synergy with the Multiplier Account: Increase your interest earned by up to 1.4% p.a. or S$600 annually
- Upfront cash rebates/rewards of S$2,000 (for minimum loan amount of S$250,000, refinancing only) or up to S$10,000 (for the Super Cash Reward Package, with minimum loan amount of S$200,000)
- Synergy with renovation loan: POSB Home Loan customers get a preferential rate of 2.88% p.a. (usually 3.88% p.a.) when they sign up for a POSB Renovation Loan
4. Get an IPA
No, no… We’re not asking you to drink beer while waiting for your dream home. IPA in housing terms stands for In-Principle Approval, sometimes also known as Approval In-Principle, or AIP. But nothing’s stopping you from chugging your India Pale Ale if that makes your home-owning journey more enjoyable!
Having an IPA can really speed things up. In short, it’s an agreement with a bank. Based on your credit history and financial health, a bank can assess your eligibility and give a pre-approval for your home loan.
There are some things to note:
- An IPA is NOT an actual loan
- An IPA is NOT a commitment that you MUST take up the loan from that bank (you are free to let it lapse while you pursue greener pastures)
- An IPA can be rejected or cancelled if your financial situation suddenly changes — so don’t plan major life or job changes when buying a home
- An IPA typically lasts 30 to 90 days — spend this time going house shopping
If you’re buying a HDB flat, you will be asked to apply for the HDB Loan Eligibility or HLE. This letter is HDB’s equivalent of the IPA.
Applying for an IPA is quick — it takes just a day or 2 to get an IPA with POSB/DBS.
5. Know where to look
If you’re still feeling lost or don’t know how to begin, there are plenty of resources to help you online. In addition to our hundreds of helpful property articles, check out POSB’s home loans portal for more guides.
Screenshot of DBS Property Marketplace
Get even more concrete advice with the DBS Property Marketplace, a one-stop shop with a home planner to determine your home affordability, listings suited to your budget (you can save/customise searches, with automatic updates when new listings that fit your criteria are added), a treasure trove of resources and information, and tools such as the MyHome planning tool to help you work out your sums.
6. Other considerations
Being a homeowner doesn’t stop at simply getting a home. You’ll also need to do renovation work to make the house truly yours (remember the preferential rate we brought up earlier?), and you’ll need to protect your purchase and items within the house with insurance.
How about furniture? Consider getting a credit/debit card so you can pay 0% interest on monthly instalments for better cashflow. Sometimes credit/debit cards will have partner promotions as well, so you can save even more money while accruing rewards points, cashback and other perks.
There are just so many considerations when embarking on this new journey of being a homeowner. Good thing there’s lots of help and support available, so you can ride the Ox by the horns this year and fulfil your long-time dream of having a place to call your own!
This is the fourth article in New Norm 2021, a series of 6 articles written in collaboration with POSB to help young families make smarter money decisions in this new Ox year.