Loans, CPF and grants: 3 ways to help finance your very first home
PHOTO: The Straits Times file
PUBLISHED ONAugust 27, 2022 1:22 AMByEvan Sim Fiona Ling
Congratulations! If you are reading this, you are properly considering buying a home for yourself and your family.
As a big ticket item with high long-term commitments, purchasing a house for the first time can be a huge deal, and we want to make the best out of our decision.
Housing is getting increasingly expensive. In the second quarter of 2022, there was a 2.6 per cent increase in HDB resale prices, with private property prices rising by 3.5 per cent. Therefore, here are three different tools that can help you finance your property and a few other assistance for other costs.
Loans
In order to finance your house, you are most likely going to take a loan. For Housing Development Board (HDB) flats and Executive Condominium (ECs), there is the option of getting a loan from HDB themselves or taking a bank loan, and as for private property, getting a mortgage from the bank or financial institution is the only option. Loans can be either paid in cash or CPF monies.
HDB loan
HDB loans tend to be more strict in terms of eligibility. The loan's interest rate is pegged at 0.1per cent above the prevailing CPF Ordinary Account interest rate, which may be reviewed from time to time, in line with CPF interest rate revisions.
The interest payable on the HDB housing loan is computed on a month-rest basis, or other basis as HDB may decide.
Your average gross monthly household income must not exceed: $14,000 for families; $21,000 for extended families (refer to the guide for more details); or $7,000 for singles buying under the Single Singapore Citizen (SSC) Scheme The repayment period is capped at either 25 years; until the buyer is 65 years old; or (Remaining lease of the flat) - (20 years).
Your Loan-To-Value ratio (LTV) is limited to up to 85 per cent of the flat purchase or up to 85per cent of the resale price or value of the flat, whichever is lower. The loan limit is prorated accordingly if the remaining lease of the flat does not cover the youngest buyer to the age of 95 and beyond at the point of flat application.
Financial Institutions, such as banks and moneylenders, tend to be more flexible in their loan eligibility; they also offer a much more competitive interest rate than HDBs. Private loans tend to vary in interest rates depending on whether you are getting the Fixed Rate Mortgage or the Variable Rate Mortgage. To find out more about the bank rates, click here.
However, note that your credit score is an essential indicator for banks to consider providing their loan to you. You also have to provide a source of income to prove that you can make consistent payments. Private loans tend to have a lower Loan-To-Value ratio of up to 75per cent\
| Summary | HDB Loan | Private Loans |
|---|---|---|
| Interest Rates | 2.6 per cent | Typically lower than HDB |
| LTV Limit | 85 per cent (If remaining lease covers the youngest buyer to the age of 95). | 75 per cent |
| Private Residences | N/A | Available |
| Citizenship | At least one Singapore Citizen | Available for Singapore Citizens, Permanent Residents, and Foreigners. |
CPF
The Central Provident Fund (CPF) is a compulsory pension scheme established by the Singapore Government. They are usually split into four different accounts. Ordinary Account (OA), Special Account (SA), Retirement Account (RA) and Medisave Account (MA). Click here to learn more about how CPF works and how your pension is allocated.
We will be focusing on OA as they are the accounts that can be used to purchase a home. There are a few requirements that you have to take note of when using your CPF
Your OA savings can be used to buy a HDB flat or build private and residential properties in Singapore. OA savings can also be used for downpayment and housing loans taken for the property purchase, stamp and legal fees, loans taken for the construction of your house and the purchase of vacant land for private properties, and Home Protection Scheme premiums for HDB flats.
Note that using CPF to pay for your loans will result in lower savings in your OA which might affect achieving your basic retirement sum in the future.
HDB loan
Buyers / Transferees can: Retain up to $20,000 of the available savings in each of their CPF Ordinary Account (OA) and use the savings in their CPF OA to pay the stamp fee, registration fee, legal fees, and premium for the CPF Home Protection Insurance (if applicable).
The remaining balance in your CPF OA must be used to pay for the flat purchase or take over ownership of an existing flat before the HDB housing loan can be granted.
Bank loan
If you are taking a housing loan from a financial institution (FI), at least 5per cent of the downpayment needs to be in cash.
According to the CPF Website, funding your bank loan using CPF also has said limitations:
“You and your co-owners (if any) may use your respective Ordinary Account (OA) savings up to the lower of the purchase price or the valuation price of the property at the time of purchase.
The total amount all owners are allowed to use for your property will increase by 20per cent of the lower purchase price or the valuation price of the property at the time of purchase. No further CPF usage is allowed thereafter.”
Government grants
Government Grants assist those purchasing HDBs; a few grants are available for first-time buyers of HDBs. For Grants directed at families, the applicant has to be 21 and above. Getting a housing grant (Families) requires two Singapore Citizens.
If you have a non-resident spouse, you are only eligible for the Singles grants. Singles planning to live on their own or with their parents would need to be 35 years of age and above.
Enhanced CPF Housing Grants (EHG)
First-timer families may qualify for an Enhanced CPF Housing Grant (Families) of up to $80,000, while a couple comprising a first-timer and second-timer may qualify for an EHG (Singles) of up to $40,000.
The EHG is designed for couples or families who are first-timer applicants buying a flat from HDB or a resale flat on the open market or first-timer Singapore citizen (SC) applicants whose fiancé/ fiancée/ spouse has previously taken any housing subsidy.
To be eligible for the flat, other than being employed continuously for 12 months before the grant application, your average gross monthly household income (including all applicants and occupiers) for the months worked during the 12-month period before the flat application must not exceed $9,000
If you are buying with another first-timer single (s), up to 2 singles may each be eligible for an EHG (Singles) of up to $40,000, i.e., a total of $80,000.
CPF Housing Grants for Resale Flats
If you are buying a resale flat instead of a BTO, the CPF Housing Grants for Resale Flat (Families) is a suitable grant for you along with EHG.
You have to be a Singapore Citizen (or include at least one Citizen or Permanent Resident), be a first-timer to grants and housing subsidies, and Your average gross monthly household income must not exceed: $14,000, or $21,000 if purchasing with an extended or multi-generation family. The remaining lease of flats should be more than 20 years, and you can only apply for 2-room flats or bigger.
| Maximum Amount | First-timer households | First-timer and second-timer couples |
|---|---|---|
| Buying a 2- to 4-room resale flat |
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| Buying a 5-room or bigger resale flat |
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If you are a first-timer Singapore Citizen (SC) and buying a resale flat on your own or with your non-resident spouse, you may be eligible for a Singles Grant of $25,000 for the purchase of a 2- to 4- room resale flat or $20,000 for a 5-room resale flat.
If you are a first-timer Singapore Citizen (SC) and buying a resale flat on your own or with your non-resident spouse, you may be eligible for a Singles Grant of $25,000 for the purchase of a 2- to 4- room resale flat or $20,000 for a 5-room resale flat.
If you are buying with another first-timer single(s), up to 2 singles may each be eligible for a Singles Grant of $25,000 for the purchase of a 2- to 4-room resale flat (i.e. a total of $50,000) or $20,000 for a 5-room or bigger resale flat (i.e. a total of $40,000).
Proximity Housing Grant (PHG)
If you are buying a resale flat to live with or near your parents/ child, you may apply for the following PHG (Families): $30,000 to live with your parents/ child, or $20,000 to live near your parents/ child (within 4km).
And if you are buying a resale flat to live with or near your parents/ child, you may apply for the following PHG (Singles): $15,000 to live with your parents/ child, or $10,000 to live near your parents/ child (within 4km).
Conclusion
Financing your home for the first time can seem extremely intimidating, especially when many options are available. However, with the right information, you can make the best decision in financing your house in the long run.
Click on the relevant links to find out more about which property loans are suitable for both HDBs and Private Properties. You can also use the Home Loan Calculator to find the best rates for your situation.
This article was first published in ValueChampion.