One of the most exciting things that could happen for couples is to purchase your first matrimonial home in Singapore. It is undoubtedly a significant moment in life, but it’s also a step forward that needs to be taken cautiously because this would probably be one of the biggest investment you will ever make in your lifetime.
Naturally, it’s also easy to be caught up in all the excitement, but hey, we recommend that you take a step back and stay cool-headed. You and your spouse should make an effort to research thoroughly before buying your first house, so as to save yourselves from any unnecessary misery in the future.
We did some kick-ass fact finding, and pieced together 6 things every couple should know before buying their first home in Singapore.
1. Research Like Hell and Don’t Be Lazy!
Make sure you do plenty of research by reading up, or better still, pepper any property agent friend of yours with endless questions! Doesn’t matter. It might sound lame but treat it like you’re preparing for your final year exams. Seriously.
Buying a home is not the same as purchasing a car or a smart screen TV (don’t be surprised that many couples probably do more research for buying a car than they do for their new home!) You need to realize the buying decisions that you’re making now will be a long-term one.
Once you commit yourselves to buying a house, the both of you will be locked in for many years. Breaching it could also result in hefty penalties and financial losses. Thus, take time to find out and understand about home renovation costs, renovation loans, mortgage loans, tenure terms, minimum occupation period (for HDB flats), property values, common household repair problems and more.
2. What Type Of House Can You Really Afford?
Ask yourselves honestly, what type of house can the both of you afford comfortably? Pose harsh questions, put up worst case scenarios, do reality checks and don’t make assumptions.
In real life, sh*t happens. Things could suddenly go into a downward spiral from one minute to the next. If one of you loses your job tomorrow, will you still be able to meet the monthly mortgage payment on time? What happens if there is an unplanned pregnancy? What if there is an unexpected medical situation that will require long-term treatment?
Scrutinise all your future plans and goals, so that both you and your spouse can determine a realistic sum of money to meet monthly mortgage payments for the years ahead. We’re talking about financing your home for the next 20 to 25 years, so it’s better to err on the side of caution.
There are sad stories about couples who were overly optimistic of their financial capabilities, over-stretched themselves, and bought homes they could not afford to service. In the end, they had to struggle with their mortgage payments and cut back on many things to make ends meet. There were also others who were forced to sell their homes at a substantial loss.
3. Have Enough Money for Home Renovation & Other Expenses?
Everyone wants to live in a nice-looking home. But to achieve that, it comes with a price tag. Depending on your property type and size, a simple home renovation in Singapore could cost you at least S$15,000. And don’t be expecting too much at this price range.
If you are looking at a decently renovated home, then be prepared to fork out at least S$30,000 or more for professional renovation contractors to handle your home renovation. As for those ‘chio’ looking homes you see in magazines, their owners would have easily splurged more than S$60,000 on the renovation works – excluding the costs of furniture. That’s a hell lot money if you ask us!
For many young couples who don’t have much cash savings, that would mean obtaining a renovation loan from a bank. Most banks in Singapore now offer a principal loan amount of up to S$20,000 with a maximum loan tenure of 5 years. Assuming you’re going for the maximum tenure, at the current interest rates, you will need to make monthly repayments of between S$376 to S$385.
That’s only for S$20k. How about the other S$20k? Go figure.
And what about the furniture and appliances for your house? The couch, dining table and chairs, the bed, the TV, air-conditioning, refrigerator, washing machine and many more. All these items will probably add another S$10,000 to your expenses!
So other than just buying your property, you need to know that it comes with many short term financial commitments like paying the renovation contractor, buying furniture and appliances, unexpected repairs etc. and hell yeah, there are probably a dozen more unexpected surprises which you have no way of foreseeing.
4. Do You Understand Housing Loans and Interest Rates?
For any loan you take up, you’re liable to repay it with interests. When you buy your house, depending on your eligibility and whether it is a HDB flat or private property, you will likely obtain a mortgage loan from the HDB or bank to fund your property purchase.
Home Loan from HDB
This is a concessionary housing loan for Singapore citizens to fund the purchase of HDB flats. Buyers can also use this loan to purchase a build-to-order (BTO) flat, resale flat, Executive Condominium (EC) or a Design-Build-And-Sell Scheme (DBSS) flat.
The interest rate is pegged at 0.1% over the prevailing Central Provident Fund (CPF) rate. The latest reported CPF rate is 2.5%, so that makes the rate at 2.6%. You should be aware though that the CPF rate is reviewed annually and depending on how the smart guys see it, the CPF rate may or may not vary, and so will your HDB housing loan’s interest rate.
Home Loan from Banks
A housing loan from banks require you to commit a 20% down payment (of the property purchase price), with at least 5% being in cash. Bank interest rates are adjusted accordingly to the Singapore Interbank Offered Rate (SIBOR) as a guide. Unlike the HDB which has a fixed interest rate of 2.6%, the rates from banks could either go up or down over time.
Housing loan interest rates are currently between 2.1% to 2.5% per month from various banks in Singapore. This make their housing loans look more attractive for the short term because you can lock in the low rates for a 2-4 year fixed loan package. However, this may not be the case if it’s over a period of 10 years or more, so do your sums carefully.
5. Are You Prepared for Possible Fluctuations?
Though interest rates were recently raised, they are still relatively low for now, but DON’T assume this will last forever. They are subject to change any time and can be quite unpredictable. Avoid getting caught off-guard and always be prepared for fluctuations in your loan repayments. Take into account the possibility of rising interest rates, the economic state, your personal employment situation, financial and government policies, and the overall property market trend.
Select the best home loan package right from the beginning. Find out if you’ll be able to refinance the mortgage later once the lock-in period is over. This is especially true when you are putting your money down for a property that is currently under development. The potential savings during the first years may be insignificant, but later on, you’ll need a good home loan package that you can count on for the long haul.
The both of you should also assume that your pay will fluctuate over time. While earning capabilities and career advancements are potentially good for young couples, this could decrease due to economic factors, parenthood, ageing and other unforeseen circumstances. Therefore, it’s always a good idea to only take a mortgage payment that you can afford. You should also try to put aside extra money every month so that it go towards “just in case” money.
6. Hoping to Score a SERS or an En-Bloc Sale?
Planning to buy a resale property with hopes of becoming a millionaire overnight through a SERS or an en-bloc sale? Don’t!
Counting on a Selective En-bloc Redevelopment Scheme (SERS) or an en-bloc sale equates to high-risk gambling. Unless it’s a freehold property, HDB flats and many condominiums in Singapore have a land lease of 99 years.
That means a 30-year old house is left only with a 69-year leasehold. Essentially, the older it is, there’ll be a higher chance that it will affect its property value. Depreciating property value against a short lease may translate into a monetary loss when it’s time for you to sell off.
So please take the time to do research before purchasing any type of property. With careful planning, you can avoid over-stretching yourselves financially and burdens in the future. Talk with your spouse about your short-term and long-term goals, and look at all the available options. Then, when you are ready to sign the papers, you’ll be able to do it with absolute certainty.
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