Ready to make the first biggest purchase of your life? Consider the following points before buying your first home.
You just got married or achieved the 35-year-old milestone and it’s finally time to get your own abode, Yay! There’s this unspeakable sense of joy mixed in with apprehension venturing into this domain which was previously off-limits. Being a realtor myself, I have seen home buyers come and go, some having done ample research while others.. well clearly taking a leap into the unknown.
Here are some things to consider before paying that $1,000 option fee to buy your first home. Warning, long post ahead but hey, it’s your first home we are talking about here, so better to be more detailed yea?
1. Consider Your Financing
Before you go searching for your dream home, take stock of your current finances and how you intend to fund your property.
Top things to consider:
- What is the maximum amount I can loan from HDB / Banks?
- How much monies I have in my CPF Ordinary Account?
- How much upfront cash do I have / want to put into my first property [excluding renovation fees]?
- How much do I have to top up in cash every month if my monthly CPF contribution cannot cover the monthly installments?
Essentially, all you need in cash to buy a resale flat is $5,000 (or less) – provided you [are eligible to] take a 90% HDB loan and there is enough money in your CPF OA to pay the 10% downpayment as well as the 3% Buyer’s Stamp Duty (BSD) Government tax.
The amount of cash you need for purchasing a Build-To-Order (BTO) flat is slightly different and the option fee can be reimbursed from your CPF OA if there is enough monies in your CPF OA to pay the downpayment and BSD inclusive of the option money. For more info, click here.
And it is best that you actually get your HDB Loan Eligibility (HLE) or your bank loan approved before you start your house hunt to avoid wasting time.
“If I don’t need so much upfront cash when taking a HDB loan, why should I consider a bank loan to begin with?”
The #1 reason for taking a bank loan is simply because of their favourable interest rates. HDB loan while consistent, goes at a hefty 2.6% interest per annum whereas bank interest rates are significantly lower. As at 3 September 2017, floating interest rates can go as low as 1.28% (1st year) while fixed interest rates can go as low as 1.5% (1st year).
If you are someone who can manage your finances well, bank loan is up your alley. But do take note that you will have to engage a private lawyer instead of a HDB lawyer to do the conveyancing for you.
In spite of this, HDB loans are still popular because they allow for lesser upfront cash/CPF payments and they do not have any repayment penalties. If a homeowner has the financial ability to partially or fully pay their flat in cash/CPF, they can do so without any penalties. This may not be so for banks.
Another reason would also be that HDB – as a Statutory Board – won’t be so inhumane to kick the homeowner out of the house should they have any difficulty in future when paying the monthly installments. The bankers won’t be so kind!
Do also bear in mind that if you have a low credit score due to repayment issues in the past, it will affect your bank and HDB loan.
There is no such thing as “HDB loan is better” or vice versa. It all depends on your needs really. Speak to your realtor should you have any questions.
2. Check Your Eligibility
Before taking the next step, be sure to check your eligibility. To buy a BTO or resale flat, you have to fall within any of HDB’s eligibility scheme.
Singapore Permanent Residents (SPRs) with a proper family nucleus who have obtained their SPR status for at least 3 years at the time of submitting the application can also buy HDB resale flats. However, they are not allowed to buy BTO flats.
3. BTO Or Resale Flat?
Much like buying a new launch condo unit, buying a BTO flat ensures that buyers (must form a family nucleus) buy their flat at the best price possibly. But let’s not forget that BTOs are getting expensive as well. Besides, [only] in Singapore, couples have to make a [difficult] decision of applying for their BTO flat – which takes 3 years to build – way before filing for a notice of marriage so that they can get their house on time just before or after the wedding. But ya’ know, life happens and breakups may occur as well.
The cancellation of a BTO flat application – depending on what stage of the buying you are at – can have dire consequences such as the forfeiture of the paid up money on the property as well as balloting chances for another BTO flat in the future. For more details, visit this detailed article by 99.co. BTO flat buyers may also be eligible for housing grants of up to $80,000.
If you believe your relationship is fireproof, then go ahead and make the application. But lady luck may not smile on you since there can be as many as 8-10 applicant balloting for the same BTO and even Sale-of-Balance (SOB) flat.
Resale flats on other hand provide the opportunity for couples to upon marriage; choose their desired location without the hassle of balloting, move in immediately upon completion of transaction, and also enjoy up to $110,000 in grants (subject to eligibility).
For couples who don’t mind waiting for their home and enjoy a higher monthly combined income not exceeding $14,000, Executive Condominiums and maybe even private condominiums may be a better buy. More details in my next article.
4. Consider The Lease of Your Flat
One of the most important point to remember about HDB flats is that they have a running lease term – which at the end of the 99 years lease will be returned to the State. While location is important, buyers should also keep in mind that they don’t overpay for an ageing property as reminded by Minister Lawrence Wong.
Buying a flat with lesser years left on its lease can affect;
- Your financing of the flat with HDB or Bank loan,
- How much CPF you can use for your flat purchase and,
- Your selling price when you want to sell your flat to upgrade.
For more information on how much CPF you can use for flats with less than 60 years lease, click here. For more information on how much HDB loan can be offered for flats with less than 60 years lease, click here.
As a rule of thumb for my clients below the age of 35, I would advise that they buy a newer flat completed not more than 10 years ago if possible. This is due to the fact that HDB flats depreciate when nearing 60 years in leftover lease and this can result in negative sale. More details in the next point.
5. Consider If You Intend To Stay Here Forever
“Woah, forever? Need to think so far meh?”
Forever seems too far-fetched but it will be something that you wish you considered when you realised the flat you bought ten years ago will be a negative sale (which requires you to pay the shortfall to HDB or the bank whom you loaned from). You need to plan for your tomorrow today, and I can’t emphasize that enough.
If you are in your 20s or 30s, there is a high chance that this flat won’t be your last home and you could possibly look to upgrade to a bigger house or a private property when you get promoted to a better job and earn better salaries later on in life. Hence, it is important to consider your exit plan (think of the future resale price) and come out with a 10-year game plan. Speak to your realtor to find out more.
This will be a non-issue for buyers buying BTO flats although they will have to sacrifice on the space and location since resale flats are usually in better locations closer to town, have many amenities and transportation routes, as well as bigger layouts.
6. Renovated Or Original Condition Flat?
Okay, now that we are done with the financial stuff, let’s talk about something less boring! One of the most interesting part of house hunting is peering into someone else’s home. And that begs the question; To buy a renovated flat or not, that is the question.
For buyers looking to save a few bucks, a renovated unit would be ideal since renovation cost will be kept to a minimum. However, owners who put good money into the renovation of their homes may most likely expect to sell their flat at a price that is higher than the recent market transactions and valuation. That would also mean that there might be Cash Over Valuation (COV).
For example, an owner who spent $60,000 on renovations ten years ago may expect to pass the cost over to you by selling his property $60,000 above COV! While some may rationalise that it is essentially the same as buying an original condition flat and pumping $60k in renovations, but it’s not. Here’s why;
- Even if the valuers were to take into account the exact renovation cost, all renovation has straight-line depreciation,
- Many people including agents don’t know this, but there is actually a formula to calculate valuation of renovation after depreciation
- A flat renovated 10 years ago or longer adds $0 into the valuation
- Buyers can buy an original condition flat and take up a renovation loan, thus do not have to cough up so much upfront cash.
After transacting so many houses, one thing I observed was this, buyers who bought renovated flats still have to spend a small sum of money on minor renovations, toilet overhaul, carpentry works, or even hacking away passé/unwanted decor.
For buyers who choose an original condition flat over a renovated flat, you can save cost from hacking away unwanted decor while getting your interior designers to renovate the house based on the latest trends and all.
Hence, while viewing a beautiful renovated home may give you the good vibes, it might at times make more sense to buy an original condition flat and renovate it into the house of your dreams. With that said, you still got to do your budgeting for the renovations!
But again, different buyers have different needs. If the renovated flat with its gorgeous decor fits the home of your dreams, why not? Talk to your realtor about this.
7. Mature Or Non-Mature Estate?
Many of u like the idea of living in an exciting estate that has everything from supermarkets, to proximity to town, to movie theatres, to megamalls, and the list can go on and on. But what if staying in a happening location may set you back by more than double the price?
Last year, The Straits Times reported that a 5-room flat in Clementi was sold at a record-breaking $1.005m. That record has since been broken by another Clementi flat which was sold at $1.04m earlier in April this year. Since last year, many Design, Build and Sell Scheme (DBSS) flats in Bishan, Toa Payoh and Boon Keng have crossed the $1 million threshold.
While not all HDB flats in a mature estate will come with such an exorbitant (DBSS) price tag, expect to pay a premium for the location nevertheless. Here’s an example.
- A high floor (above #12) 1,087 sqft 4-room flat in Block 155 Lorong 1 Toa Payoh (TOP 1999) was sold at $690,000 in August 2017.
- Comparatively, a high floor (above #13) 980 sqft 4-room flat in Block 293 Punggol Central (TOP 2005) was sold at $408,000.
- Both are within similar walking distance to the nearest MRT. One costs almost $300,000 more.
- Based on the same perimeters of 80% HDB loan on a 25-year tenure, the Toa Payoh flat buyer have to pay around $2,505 in monthly installment while the Punggol flat buyer have to pay around $1,666.
- The difference is almost $1,000, enough to pay the installment for a low maintenance vehicle.
To add on, properties in a non-mature estate also has the potential to appreciate in value as more developments and amenities are built over time. Some non-mature estates which will see lots of development in the future include the Northeast region, Jurong district, Woodlands district. One way to find out the future developments in the area is to look it up on the URA Master Plan.
Past non-mature estates which are highly sought after today include Marine Parade and even super-popular towns like Tiong Bahru, Toa Payoh, Bishan and Bukit Timah which used to be the cemeteries.
Of course living in a non-mature estate does have its drawbacks such as limited convenience shops and coffee-shops for example. If that is something you can overlook, why not consider a flat in non-mature estates?
For buyers who have a higher combined monthly income, they can also consider Executive Condominiums instead of buying a HDB flat which will be addressed in my next article.
8. Check The Property Value
Back to the point 5, some sellers are [just a little too] optimistic, hoping to sell their flats at a price that is a tad higher than recent transactions in the same block or area. Be sure to check the recent transactions in the block prior to making an offer. Also, a competent real estate agent would be able to help you negotiate down the price to avoid or minimise any COV.
If you are not in the property trade, you wouldn’t know that sometimes, there is a peculiar phenomenon where two flats in the same location with a road separating the two can have a different property value. One could just be a few metres closer to the MRT or have a better facing. If price is more important to you, choosing the cheaper alternative is a natural selection.
9. Ask The Right Questions
One common mistake that most home hunters make is they do not ask the right questions. Questions such as “How high is the ceiling height?” are redundant when compared to other questions like “How many minutes’ bus ride to the nearest MRT?” Asking the right questions ensures you know exactly what you are signing up for and allows you to prepare in the event that something goes wrong in the deal. This becomes absolutely important if you see potential red flags such as freshly painted walls outside the flat, or a brownish ceiling in the toilet.
Some important questions include the following;
- How long does it take to get to the nearest MRT via public transport?
- Where is the nearest supermarket and coffee shops?
- Where is the nearest childcare centre?
- Who are the neighbours?
- How long ago was the renovation?
- Are there any leaking issues in the house?
- Does the owner have any past history of moneylending?
- Is the owner going through financial hardship? To name a few.
But if you have a responsible and competent realtor, just leave the asking to him/her.
10. Finding The Perfect House
Have you ever tried looking for the pot of gold at the end of a rainbow and found it? It’s essentially the same as looking for the perfect house. The thing is, you will probably not be able to find a house with the best facing, ideal floor level, bright and breezy, good condition, desired amenities, angelic neighbours, and finally fall within your acceptable pricing.
If you are, unfortunately I have to inform you as a realtor that you are setting yourself for disappointment. There is bound to be something in the house which may be a [minor] issue to you. Instead of telling yourself that this house has to meet your every criteria, look instead to identify your wants vs your needs, and the dealbreakers ie. things that you confirm plus chop cannot accept.
For example, high floor is a need, while high floor and can see fireworks is a want. Another example, you cannot accept that your house is facing the main road but if the unit faces a small road is something you can consider, then strike the main road facing units out of your selection but allow yourself to consider units facing the small road.
With that, I hope that the above article has equipped you with the knowledge on searching for your first home! RW
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