Describe how the price of a Singapore home is split between cash, CPF and borrowing.
Write down the rough price of a home you have in mind. Under it, write three lines: down payment, home loan and costs of buying, and leave the amounts blank for now. A price on its own tells you little. Once you split it into those three parts, you can see whether the home is out of reach or only a couple of years away.
You met Wei Ling in lesson 5.2. She plans to buy an HDB flat with her fiance Jun in about three years. When they talk about buying, they talk only about the price, S$480,000 (an invented figure; all the figures in their example are made up and none comes from an HDB or bank rule). Some days it feels possible and some days impossible. Neither of them can say how much would come from their bank accounts, from CPF or from a loan, or what they would pay on top of the price.
The down payment is the part of the price you pay yourself before the loan covers the rest. You can pay it partly in cash and partly from your CPF Ordinary Account. The type of property and the type of loan decide how much must be cash and how much CPF can cover.
The home loan comes from HDB or a bank. It covers the rest of the price, and you repay it monthly over many years from CPF, cash or both.
The costs of buying are paid on top of the price. Stamp duty is usually the biggest. IRAS sets it and charges it on the price or the value, whichever is higher. The other costs are legal fees, valuation fees and fees tied to the loan. CPF can pay for some of these costs, and you pay the rest in cash. Renovation and furniture fall outside all three parts and are almost always paid in cash.
The rules depend on what you buy. HDB, MAS and IRAS publish them.
HDB sets who can buy a flat, which grants are available and the terms of an HDB loan. Eligibility depends on things such as citizenship, household type and income. Housing grants for eligible buyers are paid into CPF and go towards the purchase, and the amounts and conditions are on hdb.gov.sg.
MAS sets the rules for bank loans on any property, including one that limits what share of the price a bank may lend. IRAS sets stamp duty and charges extra duty on some purchases, such as a second property.
Private property gets no HDB grants and no HDB loan, so the loan has to come from a bank and the cash part of the down payment tends to be larger. To compare a flat with a condo, set out each one in the three parts and compare the cash each needs from you on the day.
Lenders do not lend on price alone. Limits set by MAS and HDB cap how much of your monthly income can go to loan repayments. The Mortgage Servicing Ratio (MSR) applies to HDB flats and executive condominiums. The Total Debt Servicing Ratio (TDSR) applies to all property loans and also counts your other debts, such as a car loan. A separate limit caps the loan as a share of the property's price or value. These limits change, sometimes more than once in a few years, so set your budget from your own figures under today's rules rather than from what a friend borrowed.
For an HDB flat, apply for an HDB Flat Eligibility letter, which tells you whether you can buy and how much HDB would lend. For a bank loan, ask for an in-principle approval. Both are based on your actual income and debts, so a car loan or a large credit card balance counts against you. Lesson 6.1 explains why expensive debt should go first.
Start with the price and find out what you can borrow. The down payment is the price minus the loan. Estimate stamp duty with the IRAS calculator, then add legal, valuation and loan fees. The down payment plus these costs is the sum you must find yourself, with renovation and furniture on top, usually in cash. Set that sum against what you hold in your Ordinary Account and in cash.
Wei Ling and Jun find they can borrow S$360,000, so their down payment is S$480,000 - S$360,000 = S$120,000. Using the IRAS calculator for stamp duty and adding legal and other fees, they estimate the costs of buying at S$12,000. The sum they must find is S$120,000 + S$12,000 = S$132,000, with renovation still to come.
Their Ordinary Accounts hold S$32,000 and S$28,000, S$60,000 in total, and they have S$14,000 in cash set aside for the home. Lesson 7.3 turns the difference between what they need and what they have into a plan.
Using CPF for a home is normal, and for most buyers it is the only way to afford one. It still has a cost. Every dollar taken from the Ordinary Account for housing stops growing there, which leaves less for your Retirement Account when it is formed at 55. As lesson 5.2 explained, if you sell, you refund the CPF amount used plus accrued interest. A home bought mostly with CPF can leave your retirement savings thinner than you expected. The course Property & Mortgages covers how to balance this against your retirement savings, whether to repay in cash or CPF, and how long a loan to take.
For now, the useful picture is the split. Think about the home you have in mind, its rough price, and what you already have in cash and in your Ordinary Account towards it.
Write down the type of home you want, a rough price, and how much cash and CPF you have for the down payment today.
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