Buying HDB Resale : How to Minimise COV
TLDR Understanding Cash Over Valuation (COV) is crucial when buying a resale HDB flat in Singapore. COV is the additional...
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TLDR
Jayson Ang provides valuable insights on money-saving strategies to achieve the goal of owning a flat before turning 35 in Singapore. The post covers essential tips on managing CPF contributions, setting aside a portion of your salary, investing in endowment or blue-chip plans, avoiding credit card debt, and choosing loans with the lowest interest rates. Additionally, it highlights the importance of financial planning, debt management, and making informed decisions when it comes to property investments. Jayson Ang’s expert advice caters to individuals looking to navigate the real estate market effectively and secure their dream home in Singapore.
Discover the money-saving strategies that will help you reach your goal of owning a flat before you turn 35! With my tips and tricks, you can make your dream of owning a home in Singapore a reality
Do you feel like you’ll never be able to afford a flat by the time you’re 35?
I know the feeling! With the median price of a 3-Room Resale Flat in Ang Mo Kio being S$350,000, and the median price of a 4-Room BTO Flat in Fernvale Vines being S$430,000, it’s understandable to feel overwhelmed. But fear not!
Countless Singaporeans have achieved this feat and you could too with my help.
I’ll explain exactly how you can save up and make your dream of owning a home a reality by the time you turn 35!
Double-Check That Your CPF Contributions Are All Sorted Out
Your CPF contributions – especially the 17% top-up from your employer – are essential to helping you purchase your first home.
When taking out a HDB Concessionary Loan, the Loan To Value (LTV) Ratio stands at 85%, which implies that you can only borrow up to 85% of the property’s appraised price. The other 15% must be either in cash or from your CPF OA.
As of 10 May 2019, the 85% LTV limit for HDB housing loans has been pro-rated, depending on whether the remaining tenure of the unit is enough for the youngest buyer/owner to live up to the age of 95.
If you opt to take out a loan from the bank instead of a HDB Concessionary Loan, the Loan-to-Value (LTV) ratio will be even lower at 75%, with a minimum of 5% having to be paid with cash and the other 20% being able to be covered by either cash or your CPF Ordinary Account.
So, when it comes to buying a flat costing $300,000, you will have to cough up a minimum of $30,000 in cold hard cash – a sum that can be particularly difficult to accumulate from your own bank account if you haven’t got the funds saved up in your CPF.
Aside from conveyancing fees (legal paperwork), you can use your CPF to pay for your monthly loan repayments, too!
If you’d rather not use your CPF, you’ll have to pay for these costs out of your own pocket.
To find out your CPF balance, simply log in to your SingPass account online.
Set Aside A Minimum Of 20% Of Your Salary, Even After Paying Your CPF
If your CPF isn’t enough for a down payment or HDB doesn’t give you a full 85% loan; having savings on hand is a lifesaver; it serves as a contingency and prevents you from falling into debt.
Additionally, if you ever encounter a financial emergency, such as needing a new job or requiring surgery, your savings will give you the cushion you need to weather the storm.
Without savings, you may have to rely on loans, resulting in a higher Total Debt Servicing Ratio (TDSR) and extra interest to pay off.
Consider Investing In An Endowment Or Blue-Chip Plan For Greater Security And Returns
Endowment plans are an attractive alternative to traditional insurance plans, as they come with the added benefit of savings.
Not only do they provide coverage, but they also pay out a substantial sum after a set period.
This is why many people refer to endowment plans as “forced savings”. Investing in one of these plans is a great way to fund something specific, like a college education, a car purchase, or a downpayment on a home.
Plus, you’ll be rewarded with growth on your investment at a rate of 3 – 5% interest – a much higher return than a regular bank’s fixed deposit.
If you’re looking for an easy way to invest in blue chips, a Blue Chip Investment Plan (BCIP) from banks like OCBC and POSB is a great way to start.
At a low cost of just $100 a month, this simple plan is a great option.
Alternatively, you may want to take a look at the Straits Times Index Fund. This fund is tied to the ST Index and often offers higher returns than endowment plans due to its low management fees.
Before investing, be sure to consult a financial advisor or wealth manager for expert advice.
Hoarding your money in a regular bank account and waiting 10-15 years is not recommended. These accounts typically only yield an interest rate of 0.125%, so after taking inflation into account, you’re essentially “losing” money!
Don’t Buy A Car Before You Buy A Flat
When you’re looking to buy a flat, most lenders (HDB or private banks) will take your Total Debt Servicing Ratio (TDSR) into account.
Put simply, TDSR measures your debt obligations relative to your income. Let’s say you make $5,000 a month, and your debts amount to $2,500 – that would give you a TDSR of 50%.
In most cases, if repayments would increase your TDSR beyond 60%, you won’t get the loan. So either you’ll have to apply for a smaller loan (which could mean not getting the home of your dreams), or clear out your debts before reapplying.
Don’t make the mistake of purchasing a vehicle before securing a flat – the hefty 5-year car loan can really put a dent in your TDSR, making it a struggle to get approved for a home loan.
Avoid Credit Card Debt
Credit cards can be an incredibly helpful money-saving tool in Singapore – that is, of course, if you use them properly.
To ensure this, make sure to pay your full bill every month. Failing to do so will result in two scenarios.
The first one is that all of your savings and investments, be they in the form of endowments or fixed deposits, will be quickly depleted by the hefty interest rates of 24% per annum associated with credit card debt.
To put it simply, it’s virtually impossible to save enough to out-earn the interest rate.
Subsequently, be mindful that if you’re behind on credit card payments or have had a habit of only paying the minimum due, this will negatively influence your credit score.
Consequently, both banks and HDB may opt to give you smaller loans or turn down your loan request altogether. Your credit card history undoubtedly affects your likelihood of owning a flat.
Choose A Loan With The Lowest Interest Rate
Debt may sometimes be unavoidable, such as for educational or familial reasons – but if that is the case, make sure to be cautious and frugal!
Give every detail of each loan option a close look, and don’t be shy about comparing them to find the best rate possible.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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