HDB Resale Flat – How Much Cash is Needed – Part 2
Financial Planning is very important if you are considering to buy a HDB Resale Flat. Is it the second most important consideration before buying one.
The first is to know if you are eligible. Then, you need to do up your sums to ensure you have enough money to finance the purchase. In addition to that, you need to know how much cash you need to pay for the initial payment, the payments required for each stage of the buying process plus all the miscellaneous expenses.
The worst thing that can happen is to overlook an item and then, to realise you don’t have enough money to pay for it. One of the most common problem faced by many buyers is this. They often get caught off-guard when they decided to use funds from CPF and only to realise the money will only be available in 2 weeks.
In this blog post, I’ll try to explain the various financing consideration, the Housing grant and all the costs involved in the process of buying a HDB Resale Flat.
But before i continue, I’d like to state a disclaimer statement here. These steps that I’m sharing, they’re valid at the time of writing and recording. The regulation and policies can change at anytime without prior notice. It may not be complete as every transactions are different. Please engage a licensed real estate salesperson to help you with your own transaction. Use of information herein is at your own discretion.
Okay, let’s proceed to talk about financial planning.
Financing HDB Flat Purchase
First thing first,... you need to have sufficient cash and the ability to take housing loan if you’re considering to buy a property. This means you must be employed or be running your own business. You must be able to show you have a regular source of income.
So, take note of how much cash you have on hand. Check your bank account balance, your spouse bank account, how much CPF balance in both your CPF Ordinary Account, how much your parents can help sponsor and how much money you can liquidate from your investment. Total it up and put this aside. This is your cash portion you allocate for the purchase of your HDB Resale flat.
The next step is to consider where your other source of funds will be coming from. You have two sources to consider. One is from HDB and the other is from the banks approved by MAS.
Here’s a bit of a warning alert for you. Please do not consider any money lender, unauthorised money lenders except the banks, those approved by MAS. Don’t even borrow money from property agents. You’ll get everyone in serious trouble. Look for banks or HDB for help in property financing.
I’ll have another blog post later to explain to you when you should consider housing loan from HDB and when to take housing loan from a bank.
But for now, approach either HDB or Bank for your loan information. It is important you start talking to them now.
If you’re taking housing loan from HDB, you need to have a valid HDB Loan Eligibility Letter or HLE when sellers grant you the OTP. Without this letter, no OTP can be issued and this means the seller cannot sell you the HDB flat.
If you’re taking loan from a bank, seller can issue the OTP to you but you’ll need the letter of offer from the bank before you can exercise the OTP. Both of these documents are important if you’re taking a bank loan to finance your purchase.
Keep this time line in mind and the type of letter you need when you are taking loan from either HDB or the bank.
The other difference when taking the HDB loan is the interest is much higher at 2.6% in today’s market. The guideline is 0.1% more than the current interest rate of CPF Ordinary Account (OA). But then, with HDB loan, you can borrow up to 90% of the purchase price. Please take note of the terms and conditions.
If you don’t have any HDB flats in mind yet or you’ve not found your preferred unit, you should still proceed to talk to HDB or your banker to get the HLE letter or an in principle approval for your loan.
With this information, you can set your Budget and know your maximum buying price. This will help you when you go shopping for your flat. The HLE letter is valid for six months.
How much cash is required?
Once you have your cash kept aside, know your CPF OA balance and know how much loan you can take. Here is the breakdown of payment.
Initial Payment Breakdown
Up to $1,000 dollars cash only - Option Fee.
Up to $4,000 dollars cash only - Exercise the OTP.
Total of up to $5,000 dollars cash as deposit to seller.
The next breakdown will depend on whether you are taking HDB loan or Bank Loan. Here is what I want you to know.
Taking HDB Loan and Bank Loan will have two different sets of payment structure. The breakdown percentage is different. You need to consider the amount of loan you take, how much you have in your CPF OA and how much grant you qualify. These numbers will determine how they will combine together with your cash on hand to finance the purchase of your HDB flat.
If you need any help to calculate the numbers in the purchase of your next HDB Resale flat, do let us know WHEN we can meet up to assist you. There are s couple more items to consider when working out the sums. So, please do be careful to cover all the bases.
The next financial consideration is the CPF Housing Grant.
CPF Housing Grant for HDB Resale Flats
CPF Housing Grant are housing subsidies allocated by the government of SIngapore to eligible Singapore Citizens. They can be used as part of the initial funds for the purchase of HDB resale flat and to help reduce the total housing loan amount.
There are various schemes designed for the different types of applicants and the family nucleus they belonged to. I’ll quickly run through the list for you. And if you have any questions, do drop me a message.
Single Singapore Citizen Applicants
First-Timer and Second-Timer Couple Applicants
Living with/Near parents or child
Non-Citizen Spouse Scheme
Here’s an important note. Do keep in mind there is a income ceiling to consider when applying for these grants. There are many terms and conditions tied to each fo the grant and sometimes you may be eligible but do not qualify. Do check with HDB or contact us if you need more info.
Costs and Fees related to Buying HDB Resale Flats
The final part on financial calculation is the additional fees required to complete the transaction. We have covered Deposits to Seller, Initial Payment and the Cash payment for balance purchase price earlier. Now the Miscellaneous Fee are as follows:
- Resale Application administrative fee
- Both the seller and buyer needs to pay the resale application admin fee whenever an application is submitted. The cost $80 for 3-room or bigger flats.
- Request for Value Processing Fee
- When you as a buyer makes an offer to buy the flat, you need to apply for valuation of the property. The cost is $120 and you can pay via online. You’ll receive a report after a few days and then you can decide if the valuation is fair and you wish to proceed. This report will be used by CPF, HDB and Banks.
- Fire Insurance
- Fire Insurance needs to be purchased if you’re taking housing loan from HDB. The certificate of Insurance will be issued on the completion date of your transaction.
- Extension of Stay administrative fee
- If your seller requests for an extension of stay and you agree, you need to pay an admin fee of $20 for HDB to process the extension. During this period, your occupation period does not start yet.
- Legal fees.
- Legal fees payable will depend on whether you are engaging HDB Lawyers or a private lawyer to represent you. The rate differences do vary.
- Buyer stamp duty
- This BSD is payable by all property purchasers regardless of property type. It is about 3% or 4% depend on the purchase price.
- Additional Buyer stamp duty.
- If you’re a Singapore Permanent Resident who qualifies to buy a HDB resale flat, you will need to pay additional buyer stamp duty of 5% of the purchase price.
If you managed to read until here, thank you so much for following to the end. If you need more information, further clarification on matters of financial planning to buy your next HDB resale flat, do write to me or make an appointment with me. Will be happy to sit with you to explain in more detail.
The next video and blog post to watch or read is "What is the HDB Resale Flat Buying Process for Buyers". In this video, I’ll explain the processes involved in buying the HDB Resale flat. It is important to know the steps as it will help you to plan your funds availability, time your move-in, renovation and completion. You want to know all these ahead of time as you negotiate the closing price.
Until the next blog post, I’ll see you again and all the best.