Congratulations, you’ve decided you’re ready to buy your first home. So what’s the first thing you should do?
If you said book your ROM date, you’re wrong. Before you even think of balloting for a flat or plonking down the cash for the deposit, make sure you first do these three things.
Figure out how much it will really cost you
So, you’ve looked at the price the developer / seller quoted you, and were pleased to see that at only $xxx,000, it was within your budget! If you save really hard you should be able to afford this!
But if you’re already on a tight budget, that’s not going to cut it. There are some extra costs you mustn’t forget to take into account when figuring out how much you’ll need, including the following:
Stamp duty – All buyers, whether Singaporean, PR or otherwise, must pay Buyer’s Stamp Duty on their property purchases. You pay 1% for your first $180,000, 2% on the next $180,000 and 3% on the remaining amount. So for a flat costing $400,000, you’d pay BSD of $6,600. If you are a couple consisting of two PRs buying a resale flat, you will also be forced to pay a hefty Additional Buyer’s Stamp Duty (ABSD). That same $400,000 flat would thus attract $6,600 of BSD and ABSD of $20,000.
Legal fees – For HDB buyers, HDB’s lawyers are by far the cheapest option, in most cases under $500. Otherwise, you’ll usually end up paying between $1,000 to $5,000 depending on the value and type of property you’re buying. If you later decide to refinance your home loan, you will have to pay additional legal fees.
Registration fees and other disbursements – Your lawyers are going to incur some costs on your behalf, and they will of course be included on your bill. Ask them if these are included in the quotation they gave you, and if not, ask for an estimate.
Home loan interest and administrative fees – Whether you are taking out an HDB loan or bank loan, you will have to pay interest to the bank in addition to the sum you are borrowing. Administrative fees are also incurred when you take out a bank loan.
Do research on the best loan for you instead of automatically picking the HDB loan
You might be surprised to hear this, but HDB loans are usually one of the more expensive options around, at least right now.
HDB loan interest rates are pegged at 0.1% above the CPF Ordinary Account interest rate. Right now, the CPF OA interest rate is 2.5%. So the HDB loan interest rate is 2.6%. Right now, that’s high, by the way.
For bank loans, you will need to choose between fixed and floating interest rates. Fixed interest rates tend to be higher than floating right now, but they give you the certainty of locking in that rate for a couple of years.
Floating interest rates, on the other hand, are comparatively very low right now. But whether they stay low really depends on the fluctuation or SIBOR or whatever other scale yours is pegged to.
Educate yourself on what the differences are before you sign up for a home loan instead of blindly going for the HDB loan option, or whatever your banker is trying to convince you to sign up for.
Confused? There are lots of free educational resources on MoneySmart such as this guide to choosing between a fixed or floating interest rate home loan, or this simple video below explaining whether you should choose a bank loan or HDB loan. You can also compare home loan rates for free using MoneySmart’s home loan wizard.
Explore the area
It goes without saying that you should inspect in person any resale property you’re buying or, in the case of BTO or unconstructed condo developments, the showflat.
But don’t forget to also inspect the area surrounding the site. Don’t believe the rosy descriptions of the property in the launch documents or the developer’s website. They always make every single property sound super accessible and conveniently-located, but we know that’s not the truth.
Test out the transport links in the area at peak hour when you need to go to work. That “5 minute walk to the nearest MRT station” might be applicable only to marathon runners. That “convenient feeder bus service that takes you to the MRT station in minutes” actually takes 20 minutes to arrive. And you might never make it to the “expressway entrance that’s just 10 minutes away” if the road is so jammed every morning it adds half an hour to your commute.
You should also do research on the future of the area, looking out for upcoming MRT stations, new infrastructure and new facilities that are in the works. These developments might inconvenience you in the short run because of the construction, but could have a positive impact on the value of your home in the long run.
Also don’t forget to take into account your personal needs and long term plans. If you intend to have kids, for instance, you’ll want to consider whether there are schools in the area and facilities such as childcare.
See also: 5,291 HDB FLATS LAUNCHED TODAY!
This article was first published in Money Smart Sg.