“Hurry buy house and settle down!”
“Don’t wait until old to buy!”
As a twenty-something living in Singapore, it is impossible to avoid the chorus of opinions from relatives, friends and even well-meaning taxi drivers on how to best settle down with your significant other. In our early twenties, my friends and I each succumbed to the pressure and launched into our first property purchases. Some of us had a degree of success, while others were less lucky. Read on to learn from our experiences!
*Names have been changed to respect the privacy of individuals.
Also use the checklist: ARE YOU READY to buy a house within your means
#1: DO figure out what you can afford
My friend Krysten* fell in love with a private condo in the same neighbourhood where she grew up. Pressured by the property agent and not wanting to miss out on what felt like a once-in-a-lifetime opportunity, she hastily signed the Option to Purchase (OTP) - a non-refundable deposit that is 1% of the property’s purchase price.
Unfortunately, she later had trouble securing a loan from the bank as a large chunk of her monthly income was already tied up with credit card and car loan repayments. As a result, the three week period elapsed and she had to forfeit 25% of the option.
With the introduction of the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR), it is becoming more difficult for some aspiring home owners to refinance their properties. While home buyers may generally take out a loan of up to 80% (from the bank) or 90% (from HDB), this will still depend on your credit assessment. As a result, you should not assume that you will get the loan you want and base all your financial calculations on it until you have actually applied.
Total Debt Servicing Ratio (TDSR): this is a measure used by banks to determine the proportion of gross income that is tied up by a person’s financial obligations. Only 60% of your monthly income can be spent on debt repayments. This ratio is applicable to all housing loans.
Mortgage Servicing Ratio (MSR): permits only 30% of gross monthly income to be spent on mortgage repayments. MSR is calculated by dividing your monthly mortgage obligations by your gross monthly income. This ratio is applicable to loans for HDB and Executive Condos.
Information accurate as of March 2017
So if your monthly income is tied up with other debt repayments such as your credit card payments and personal loans, then you may have to pay more upfront and rely less on a loan.
#2: DON’T use ALL your CPF savings
Although their CPF savings enabled Sarah and Hafiz* to buy the property of their dreams, they are both now regretting that they spent such a significant chunk of it. Like Krysten, they chanced upon a private property that they loved, and since Sarah had just been promoted at work, they felt that it was an opportune moment to commit.
However, they did not anticipate that the cost of renovating the property would be so high and would involve so many additional costs. They also had to pay for pest inspections for their unit, property tax, a number of insurance payments, and quarterly conservancy fees as it is a private condo.
In addition, they decided it was time to start a family and were pleasantly surprised with twin babies less than a year later!
While they continue to derive great pleasure from living in their dream home as a family, they are worried about whether they will be able to pay off their mortgage before reaching 55, as they are paying their monthly mortgages with the help of their CPF Ordinary Accounts. The issue here is that a huge portion of their monthly income goes towards household expenses and raising their children, so they are largely relying on their CPF savings for their retirement.
The more they use their CPF savings for housing, the less they will likely end up with for their retirement expenses. And not forgetting the opportunity cost of otherwise leaving more money in your CPF to grow with the attractive interest rates.
#3: DO find out if you are entitled to grants
Priya and Jai* were perhaps the only friends in my circle to make wise decisions when purchasing their first property. Before looking at potential flats, Priya did some research and spoke to a cousin of hers who had benefited from a Special CPF Housing Grant (SHG), which entitled him and his wife to a $30,000 grant as their total household income did not exceed $5,000.
Since it was their first time applying for an HDB, and they also had a combined income of less than $5,000, Priya and Jai decided to apply for both SHG and AHG (Additional Housing Grant). This entitled them to $35,000 from CPF to purchase their first property. This was a significant help to the young couple and the amount, combined with their savings, enabled them to pay for the downpayment without credit.
The exact grant amount received depends on exactly how much your combined income is and these amounts have changed since their time. You can check how much you would be entitled to here.
To this day, Priya and Jai are still living in that same flat and have paid off the majority of their mortgage.
The government has a number of other such grants to help families and couples purchase their first property. Do make use of these if you are eligible.
There is also a Staggered Downpayment Scheme to lessen the initial burden of the downpayment on a property. It is open to first-timer couples that meet certain conditions.
How to avoid the mistakes we made and make sure you end up content and debt-free like Priya and Jai? The infographic below is a good starting point for assessing your preparedness for buying a home:
Nowadays when my friends and I meet up, the conversation inevitably turns to the rising cost of living in Singapore and how we are planning for our future and managing our finances. We often can’t help but moan about some of the financial mistakes we made when buying our first properties, and the things we wish we had done differently. In any case, I hope you will learn from our stories and make some wise decisions when buying your own first home.
Writer profile: Jessica is a freelance writer and full-time cat enthusiast. She is also pursuing a teaching qualification as she has left the rat race to become a secondary school economics teacher.