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Author: Ravi Philemon
First time home buyers can find the house buying process to be very intimidating.
By: Phoenix Lee/
Despite the stress, home ownership is a terrific way to create stability in your life and to start building wealth for your future. For the first time home buyers, the home purchase will be an emotional event which may be fraught with uncertainties.
There is so much money involved in the first time home buyers purchase decision that very decision should be analysed then analysed again.
So, how do thousands of people manage to buy new homes each year? With lots of preparation, attention to detail, as well as some help. First time home buyers will not know everything there is to know about buying that first home. But with a little research, they can put themselves in position to succeed. In fact, the more they know of the process, the better off and less stressed they will be.
First time home buyers may even get the best home loans if they were guided step-by-step by someone they trust.
But what is the basic cost of buying a private residential apartment by the first time home buyers? Banks are able to loan a maximum of 75 per cent of your private apartment’s valuation or price (whichever is lower). This is known as the Loan-to-Value (LTV) ratio. The other 20 per cent can be paid through cash, your CPF Ordinary Account (CPF OA) funds, or a combination of the two. The remaining five per cent must be paid in cash.
Assuming the private apartment costs $1.6 million, this is how the breakdown would look like:
Securing the OTP – $80,000, or five per cent of $1.6 million
Signing the Sales and Purchase (S&P) agreement – $240,000, or 15 per cent of $1.6 million. This can come from your CPF OA, or a combination of cash and your CPF monies.
Upon sales completion, or developer’s request if the private apartment is still under development – $1.28 million, which will come from the bank
Adding the applicable stamp duties
The list of stamp duties include:
Buyer’s Stamp Duty (BSD)
The BSD is:
– One per cent on the first $180,000 of your property price
– Two per cent on the next $180,000
– Three per cent from $360,000 to $1,000,000
– Four per cent from $1,000,000 onwards.
So if the property price is $1.6 million, the BSD comes to $1,800 + $3,600 + $37,200 = $42,600
The BSD can be paid with cash, CPF, or a combination of the two.
Additional Buyers Stamp Duty (ABSD)
If you are a Singapore Citizen (SC), there is no ABSD as this is your first property.
Singapore Permanent Residents (PRs) pay five per cent ABSD for their first property, and foreigners pay ABSD of 15 per cent.
Mortgage Stamp Duty
This is $500, and can be paid in cash or from your CPF. Some banks subsidise the mortgage stamp duty as a “bonus”.
For owner-occupied private apartments (we assume this is the case for your first property), the tax rate depends on the Annual Value (AV) of your home, as determined by IRAS. The AV is the expected rental income that you could generate from renting out the property every year.
The tax is a tiered system (e.g. nothing on the first $8,000 of AV, four per cent on the next $47,000, six per cent on the next $15,000, and so forth). You don’t really need to crunch the numbers manually, just use the IRAS calculator, once the AV is known.
(If you want to know the AV in advance, ask the property agent, or look at the rental rates of surrounding properties).
We will assume our mass-market private apartment has an AV of around $42,000, which is quite typical for most suburban private apartments. This comes to an annual tax of around $1,400.
Other fees include conveyancing (the legal paperwork), which costs about $2,000 to $3,000. Depending on the law firm, you may be able to pay this with your CPF.
In addition, you may have to pay a valuation fee of between $300 to $500 (unless the private apartment is under development, in which case the bank will usually accept the developer’s valuation). This has to be paid in cash, but some banks will subsidise the cost.
There may be other administrative fees such as loan processing, which varies between banks; but these seldom amount to more than $500.
Finally, you need to factor in maintenance fees. This is around $250 to $400 a month for many private apartments. The amount you pay depends on the size of your unit, and the number of units (the more units there are, the more the maintenance cost is spread out. That’s why some people avoid private apartments with small numbers of units).
Total amount needed for your first private apartment, including taxes:
After including the taxes, here’s what you’ll need:
Cash needed on hand for down payment – $80,000
Cash needed in CPF (including various fees and taxes) – Approx. $285,400
All in, you will need $365,400 set aside for your first private apartment, before the bank’s financing comes in.
But that’s not all: first time home buyers also need to make sure your income qualifies you
To get the full 75 per cent LTV, you need to earn enough; just having a few hundred thousand set aside isn’t enough.
All banks follow the Total Debt Servicing Ratio (TDSR) framework. The TDSR restricts your loan repayments to 60 per cent of your monthly income, inclusive of other loans.
For example, say you earn $7,000 a month, and you have personal loans and a car loan that take up $2,000 a month in repayments. Your total home loan repayment is curbed at $4,200 (60 per cent of your monthly income) – $2,000 (your existing debt obligations) = $2,000.
If your home loan repayment would exceed $2,000 a month, you will be asked to take less than the full 80 per cent LTV. You’ll have to make up the difference in cash. For example, if the bank only gives you 60 per cent LTV on a $1.4 million private apartment (inclusive of taxes), you would be facing a down payment of $560,000.
This is why, in the year before their home loan application, first time home buyers should always pay down their debts aggressively.
But is there any way first time home buyers can save lots of money?
It is, possible with the help of professionals like mortgage consultants. For example, the mortgage consultants at iCompareLoan may be able to find you a cheaper law firm and insurance. Likewise, our mortgage brokers may also be able to help you find a bank with the best home loans to fit your unique financial situation.
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