3 key factors you should know when using your CPF to purchase property (2021)

You don’t have to wait till you’re old and wizened to use the money in your CPF account. The first time you’ll find yourself using your CPF monies is usually to buy a home.

The money in your CPF OA can be put towards the purchase of any kind of home in Singapore, HDB or private, resale or under construction, so long as it’s not a cardboard box or tent.

But to use your CPF money to buy a home, you can’t just stand at some CPF ATM machine and wait for the cash to appear. You need to know when and how you can use this cash.

Here’s what you need to know.

Using your CPF funds for a home – What can you use it for?

When you buy property, you don’t just hand over a million dollars to the cashier and then wait for the change (if any).

You will actually be paying for a series of things at various junctures, and will need to know before hand which of these items you can use your CPF OA money to pay for.

CPF OA funds can be used to pay for the following:

Downpayment

Your CPF savings can be put towards your downpayment. Do note, however, that you might still required to put up some cash.

• HDB flat buyers taking an HDB loan: 10 per cent downpayment, which can be completely paid with CPF savings. You may also qualify for the Staggered Downpayment Scheme if one applicant is under 30 years old at the time of application.
• HDB flat buyers taking out a bank loan: 20 per cent downpayment, of which at least 5per cent must be paid in cash.
• Private under-construction development: 20 per cent deposit, of which at least 5per cent must be paid in cash.
• HDB resale flat: Deposit of up to $5,000 which must be paid in cash.
• Private resale property: Deposit of at least 5 per cent, including an option fee of at least 1 per cent which must be paid in cash.

Portion of the purchase price not covered by housing loan

After you have paid your downpayment, you can use a combination of cash and/or CPF funds to pay for the portion of the purchase price (if any) that is not covered by your housing loan.

This money will be paid in a lump sum to the seller upon completion or, in the case of a BTO or uncompleted property, whenever it becomes due.

ALSO READ: 3 things you didn't know you could pay for with your CPF

Home loan repayments

Your CPF OA money can also be used to make your home loan repayments.

If you have drained your account in the initial stages of your property purchase but are still receiving CPF contributions every month from your employer, these contributions can be used to make your monthly home loan repayments. This applies to both HDB and bank loans.

Legal fees and stamp duty

You can use your CPF OA money to pay stamp duty, legal fees and other administrative charges. Your lawyer or HDB will have you pay them for these charges. Do note that this is on a reimbursement basis, which means that you will need to have the cash upfront before CPF reimburses you.

Home Protection Scheme fees

HDB flat buyers who don’t have life insurance covering outstanding home loans must be insured under the Home Protection Scheme (HPS), which protects you and your family from losing your flat if you die, get diagnosed with a terminal illness or are totally and permanently disabled. Your annual HPS premiums can be paid using your CPF OA funds.

Limits to how much you can use

Some property buyers might face limits as to how much of their CPF funds can be put towards a property purchase.

There are two types of limits that can affect you.

Valuation Limit

You have the purchase price of your property, which is what you are paying. Then you have the market value of your property. The Valuation Limit (VL) is the lower of these two figures.

So if you are paying $500,000 for your property but the market value is actually only $450,000, the VL will be $450,000. Your CPFmoney can be used to pay for the property up to the VL, including your downpayment and home loan repayments.

ALSO READ: 10 surprising figures from CPF Board's 2020 Annual Report to know about now

Withdrawal Limit

The Withdrawal Limit (WL) is higher than the VL, and lets you borrow above what the VL permits.

Right now, the WL is 120 per cent of the VL.

Now that you understand what the VL and WL are, it’s time to figure out which ones apply to you.

There is another catch. While the WL allows you to withdraw CPF funds over and above the VL, if you are under age 55, you can only withdraw this extra 20per cent above the VL if you have set aside the current Basic Retirement Sum (BRS) in your CPF OA and SA. If you are over 55, you’ll have to meet the BRS in your RA, SA and OA.

Relaxing of CPF rules for older flats

Changes in CPF rules for housing purchases will allow home buyers to buy ageing flats with larger loans via CPF, as long as the property’s remaining lease covers the youngest buyer until the age of 95.

Minimally, HDB flats must still have at least 20 years left on their leases before they can be paid for with CPF monies.

Changes	Before May 10, 2019	After May 10, 2019
Minimum lease left to obtain maximum CPF usage and HDB housing loan	Flats with 60 years or more left can be paid with CPF up to VL	Flats with at least 20 years left on the lease and which can cover youngest buyer until at least 95 can be paid with CPF up to VL.
Flats with 30 years to less than 60 years can be paid with CPF if the remaining lease of the property can cover the youngest buyer to the age of 80, capped at a percentage of VL or property purchase price, whichever is lower.
Minimum lease	Owner age + remaining lease is at least 80 years	Owner age + remaining lease is at least 95 years
HDB housing loan	Restrictions on the amount of HDB housing loan for purchases of flats with less than 60 years remaining.	Up to the full 90 per cent loan-to-value limit for housing loan as long as flats have at least 20 years left on the lease and can cover youngest buyer until age 95.

You might still be able to use some of your CPF savings to pay for property when you reach 55

When you hit the age of 55, your CPF OA isn’t going to look the same anymore. Simply put, if you don’t have that much CPF savings, you could find yourself with only $5,000 in your OA, as the rest of your money together with the funds in your SA get channelled into your newly-created Retirement Account (RA).

With so little money in your CPF OA, does that mean you can no longer buy property? Not exactly.

If you won’t have paid off your home loan by age 55, before you turn 55 you can apply to reserve savings in your OA for home loan repayment. This will prevent the money from being transferred into your RA when you turn 55. It will however affect your monthly retirement payouts, so proceed with caution.

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After 55, you can still use some of your CPF funds to make home loan repayments, provided you pledge your property and will still have at least the Basic Retirement Sum in your account after any withdrawals.

By pledging your property, you are committing to refund all the amounts used with interest into your CPF account if/when you sell your property.

That being said, there are other avenues to finance your home loan, such as a bank loan. In fact, we’ve compared the pros and cons of a HDB loan vs a bank loan, and how you could be saving money with a refinanced bank loan. Aside to that, we’ve also covered how much downpayment you need for your new home. Remember, the choice is yours!

This article was first published in MoneySmart.