Work out the sums to buy BTO flat
BUYING a flat is not fuss-free and the information that you have to absorb can be overwhelming. And you need to have sufficient money.
Here's a guide on the costs involved and key things you ought to know.
HOW MUCH WILL YOUR FLAT COST YOU?
In this example, we'll be looking at a four-room Build-to-Order (BTO) flat in a non-mature area with a purchase price of $315,000.
Let's say the applicants' median household income is $5,000, they have exactly the amount needed for downpayment in their Central Provident Fund (CPF) Ordinary Account and they are taking up a Housing Board housing loan.
Here is a list of the fees and initial costs:
Application fee: $10. Payable by credit card.
Option fee: $2,000 paid when you book the flat; will be reimbursed in cash when there is enough money in your CPF Ordinary Account to pay the downpayment. Payable by Nets or cashier's order.
Downpayment: 10 per cent of $315,000 ($31,500) from CPF Ordinary Account or cash savings. If you are taking a bank loan instead of an HDB housing loan, then the downpayment will be a larger percentage. Payable by cash, cashier's order or CPF.
Stamp duty for signing of Agreement of Lease: $4,500. This is how it works: The stamp duty sits at 1 per cent for the first $180,000 of the flat's purchase price, 2 per cent for the next $180,000 and 3 per cent for any remaining amount. Payable by cash, cashier's order or CPF.
Stamp duty and legal fees during key collection: Lease In-Escrow registration fee of $38.30 (fixed amount), which you will need to pay if HDB acts for you in the flat purchase. There is also a survey fee of $275 (before GST) chargeable for a four-room flat. Note that the survey fee varies depending on the type of flat you are purchasing. Payable by cash, cashier's order or CPF.
Conveyancing fee (during signing of Agreement of Lease): $201.60. This fee is calculated like this: You will pay $0.90 per $1,000 for the first $30,000 of the flat's purchase price, $0.72 per $1,000 for the next $30,000 and $0.60 per $1,000 for any remaining amount. Payable by cash, cashier's order or CPF.
Caveat registration fee (during signing of Agreement of Lease): Fixed amount of $64.45, payable when you sign the Agreement of Lease. Payable by cash, cashier's order or CPF.
Fire insurance: You will have to take up a fire insurance policy from Etiqa Insurance, the insurance agent appointed by HDB, if you are taking up the HDB housing loan. For a four-room HDB flat, the premium stands at $5.50 for a five-year term (it insures a building sum of $69,100). More information can be found on Etiqa's website. Payable by cash, cashier's order or CPF.
Home Protection Scheme: Annual premium of $173.22 for 22 years (computed based on loan amount of $283,500 and my own birth date). Payable by cash, cashier's order or CPF.
The Home Protection Scheme is a mortgage-reducing insurance scheme administered by the CPF Board. It insures CPF members and their families against losing their home, should the policyholder become permanently incapacitated or die (before 65) prior to paying up the housing loan.
You need to be insured under the Home Protection Scheme if you want to use your CPF Ordinary Account savings to pay your monthly instalments.
Also, the premium is paid annually using your CPF savings or cash.
The premium amount depends on factors such as your declared percentage of coverage, loan amount, age and gender.
Monthly housing loan instalment repayable for 25 years: It is estimated to be $1,080 using HDB's current concessionary interest rate of 2.6 per cent per annum. Payable by cash, cashier's order or CPF.
In this scenario, 23 per cent of the applicants' household income of $5,000 will go to their CPF Ordinary Account, amounting to $1,150. The amount in the applicants' CPF Ordinary Account monthly is higher than the estimated monthly instalment, so they do not need to fork out any cash to service their monthly home loan instalment.
You can use your CPF Ordinary Account savings and/or cash to pay the monthly instalments of your housing loan. The monthly instalments are payable on the first day of each month.
HOW COSTS DIFFER FOR A 25-YEAR BANK HOME LOAN
Downpayment: 20 per cent of $315,000 ($63,000); 5 per cent of this $63,000 has to be paid in cash while the remaining 95 per cent can come from your CPF Ordinary Account or cash savings.
Stamp duty and legal fees during key collection: Mortgage In-Escrow registration fee of $38.30 (fixed amount); paid if the bank acts for you in the flat purchase, and a survey fee of $275 (depending on the type of flat).
Monthly housing loan instalment repayable: With a loan amounting to $207,000 (after clearing the 20 per cent downpayment and getting the same grants awarded in the example above), the estimated monthly instalment sits at $877 computed with a generic bank interest rate of 2 per cent per annum for the first two years in a bank's fixed rate package.
You may also refinance your bank home loan, though you have to keep abreast of market conditions, weigh the pros and cons, and keep a lookout for the right time to get your refinancing game going.
Banks' interest rates fluctuate with the market. So do your maths and gauge your risk appetite to see if you prefer to stick to the concessionary interest rate the HDB home loan offers, or take advantage of interest rates that vary according to market conditions.
There are plenty of options for you to pick from.
With the choice of picking either a HDB home loan or a bank home loan, it will be really useful to find out which type of home loan is better for you.
Eligibility to purchase a flat: Some conditions include at least one of the applicants being a Singaporean and at least one other applicant who is a Singaporean or permanent resident here; applicants are in the income ceiling for the flat they intend to buy; not owning other properties here or overseas; and not having disposed of any property in the last 30 months.
The full list is available on hdb.gov.sg.
CPF contribution rates: For employees aged 55 and below, the contribution rates by workers is 20 per cent of their monthly wage, while that by employers is 17 per cent.
This applies to Singaporeans earning monthly wages of $750 or higher.
Check cpf.gov.sg for the full list of rates.
CPF allocation rates: For employees aged 35 and below and earning $750 or more a month, 23 per cent of their wages goes into the Ordinary Account, 6 per cent into the Special Account and 8 per cent to the Medisave Account.
Visit cpf.gov.sg for the full list of CPF allocation rates.
Do note that payments that come from your CPF account can trickle down only from your Ordinary Account. The percentage of flat applicants' wages in CPF that is allocated to the Ordinary Account falls as they age, so that is something to consider if you are buying your first flat at a later age.
First-timer privileges: According to HDB, first-timer privileges include higher proportion of flat supply, more ballot chances, additional ballot chances for unsuccessful attempts and the possibility of staggering your downpayment.
Under the Staggered Downpayment Scheme, you can split your downpayment into two separate instalments. Half of the downpayment is paid when you sign the Agreement for Lease while the remaining amount is paid during the key collection for your new flat. Check if you are eligible on HDB's website.
Total Debt Servicing Ratio (TDSR): Capped at 60 per cent of the applicant's gross monthly income, this is the maximum percentage of your total monthly debt obligations (including the monthly repayment for the property loan that you are applying for and all your other repayment obligations such as student loans, credit card debts, car loans, personal loans and so on) to gross monthly income.
Mortgage Servicing Ratio (MSR): Capped at 30 per cent of applicant's gross monthly income, this is the maximum amount that can go into home loan repayments.
Grants: If you are applying for a flat as a first-timer household, you may be eligible for the Additional CPF Housing Grant and/or Special CPF Housing Grant. These grants may apply to other applicants in other categories or schemes, too.
For the example above, it could amount to $45,000, comprising $5,000 Additional CPF Housing Grant and $40,000 Special CPF Housing Grant.
You can visit hdb.gov.sg to determine how the grants are computed for those who are eligible.
A newly rolled-out grant includes the Proximity Housing Grant. The Step-Up CPF Housing Grant is available to eligible second-timers applying for a second subsidised HDB flat to help offset their cost in upgrading from a two-room flat to a three-room new flat in a non-mature area.
This article first appeared on Get.com, a lifestyle and personal finance website.