For most Singaporeans, purchasing a Housing & Development Board (HDB) flat marks an exhilarating milestone.
Yet, the financial implication is a top-of-mind concern for first-timers embarking on their home-buying journey.
While these public housing are heavily subsidised by the government, purchasing a HDB flat still proves to be a hefty commitment to some. Purchasing a home without a plan sets you up for financial hardships down the road.
So, whether you have an eye on a resale unit or a BTO flat, having a budget before purchasing your first HDB flat is key to maintaining sustainable financial health.
When budgeting, look at your available funds and estimate how much you need or can afford to spend on your new home.
Here, we will break down the financial resources and responsibilities first-time home buyers should consider.
Your Home-Owning Financial Resources
Income and Savings
How much of your savings and income can you comfortably contribute towards owning your first property?
Think about your monthly expenses, basic living fees, debt and other financial goals you are saving towards. Since owning a new home is a sizable investment, take some time to assess your net income and savings you can comfortably reserve for a down payment and, subsequently, a monthly mortgage. It will give you a good idea of what you can afford.
If you’re in the early stages of saving for an HDB flat, start by figuring out your net income by subtracting your monthly expenses from your take-home pay. Then, dedicate a portion to save for a HDB flat.
It’s advisable to still keep an emergency fund to cover 3-6 months of living costs even as you save up for a home.
Housing Loan
Know your housing loan options. These can come from either HDB or other financial institutes.
Taking out a loan spells a long-term financial commitment. It’s important to compare different interest rates and find the one that suits your situation. It’s doubly crucial to assess your ability to repay the loan in the long run before you decide on a loan amount.
CPF recommends keeping your mortgage servicing ratio within 25% to 30% of your gross monthly income; this leaves room for other commitments and makes your mortgage manageable.1
CPF Funds
Your Central Provident Fund (CPF) contribution can be used to ease the financial burden of buying your first home.
Aside from using your CPF Savings in your Ordinary Account (OA), you can also check if you are eligible for the CPF Housing Grant.
While you can repay your mortgage with your CPF fund, make sure you plan wisely so it doesn’t eat into your retirement funds and derail your plans.
Your Home-Owning Financial Responsibilities
Down Payment
When it comes to securing your property, you will typically have to pay upfront, a minimum of 10% of the property price.
The price of your flat will defer based on flat types, location and amenities. Make sure to explore different options to see which suits your needs and budget best. It’s helpful to consider the accessibility to transportation and amenities as they can impact your daily expenses and convenience.
How much you will actually have to fork out for the down payment depends on the loan amount you are eligible for. You can also aim for a higher down payment to shorten your time span in debt and the overall loan interest.
If a 10% upfront cash payment is too much to shoulder in one go, check if you are eligible for the Staggered Down Payment Scheme to phase your payment into two instalments. They are due during the lease signing for the first payment and key collection for the second.
Closing Costs
First-time buyers should also set aside a portion of their budget for additional costs, such as stamp duty (ABSD), legal fees, and valuation fees.
Many of these costs are non-negotiable and can quickly add up to a significant amount.
So, be aware of all the costs which go into your first purchase early on. This way, there will be no surprise expenses during your home-buying journey.
Renovation Costs
Your new home should bring you joy and cater to you and your family’s needs.
Even if you are just planning to stay for the Minimum Occupancy Period (MOP), you will want a space you enjoy living in.
No matter if it’s just cosmetic touch-ups or a full renovation to increase your home value, saving up for these outlays will avoid straining your wallet down the road.
Recurring Expenses
Your home-buying journey extends beyond handing in your down payment.
You will have to work towards repaying your monthly mortgage, which can extend up to 25 years (or more). This includes interests on top of the principal amount of your flat.
It’s also no surprise that your HDB flat comes with monthly service and conservancy charges. From time to time, there will be future upgrading programs or major repairs in your HDB estate that require your contribution.
There might even be home insurance to finance if you plan to safeguard your investment and personal belongings.
So, remember to account for your current and future expenses to ensure these monthly obligations do not dent household finances or your retirement fund.
Takeaway
Homeownership comes with significant financial commitments.
It’s definitely necessary to recognise the reality of buying your first home but don’t let it take away the excitement of having a place to call home.
With a comprehensive budget that factors the different costs and resources, as well as your investment goals and obligations, you can sidestep much of the financial pain that goes into buying your first HDB flat.
As the Singapore government actively strives to make housing affordable, be sure to also keep an eye out for grants or policy updates that can facilitate your home-buying journey.
For personalised guidance, consider consulting with our Wealth Associates or HDB loan specialist.
Best of luck in securing your first home!
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The views expressed in this media does not necessarily reflect the views of PFPFA Pte Ltd (“PFPFA”). The information provided herein is intended for general circulation and not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use will be contrary to local laws or regulation. You should also note that the information presented does not have regard to the specific investment objectives, financial situation or the particular needs of any specific individuals; and therefore, may not be appropriate to your individual needs. You should seek the advice of your financial adviser representative or a professional before making any commitment to purchase or invest in any investment product.
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