Purchase made simple
How to buy your first $1 million home
Buying a property is an exciting but major decision that requires proper planning. Before you decide to take the plunge, you should consider these factors: affordability, servicing and disposal.
Affordability
To see whether you afford to buy a $1 million property, look at your income, credit rating, existing debt and the required down payment.
If this is your first home loan and you intend to live in it, you can borrow up to 80 per cent of the purchase price. For the first 20 per cent down payment, $50,000 or 5 per cent of the purchase price must be paid in cash, and the balance can be paid using a combination of CPF and cash.
To qualify for the 80 per cent loan under the framework of Total Debt Servicing Ratio (TDSR), you must have a minimum household income of $6,000 and no outstanding debt obligation.
For investors, if this is a second home loan, the maximum loan to valuation is lowered to 50 per cent and the minimum cash downpayment is raised to 25 per cent of the purchase price. On top of this, you will need to pay additional stamp duty between 7 and 10 per cent of the purchase price.
Summary
Purpose Owner Occupied Investment
Home Loan Number 1st Home Loan 2nd Home loan
Loan Tenure 30 years Up to 30 years
Sum of Tenure & Less than 65 years Less than 65 years
Age of Borrower
Loan Amount $800,000 $500,000
Loan to Valuation 80% 50%
Minimum Cash 5% 25%
Down Payment
Minimum $6,000 $7,100
Monthly Income*
Monthly Debt $0 $2,000
Obligation
ABSD* 0% 7% - 10%
*1) Minimum monthly income is assumed to be fixed and 2) ABSD refers to Additional Buyer's Stamp Duty.
Servicing
Monthly loan payments can be paid using cash or CPF and supplemented with rental income, if any.
On your first home loan on a private property, you are eligible to use your CPF Ordinary Account savings for up to 100 per cent of the valuation limit or up to the withdrawal limit if half of the prevailing Minimum Sum is met.
On your second home loan on a private property, you can use your excess CPF Ordinary Account savings after half of the prevailing minimum sum in your Special and Ordinary accounts have been set aside. The valuation limit on your second home loan is also capped at 100 per cent.
On a $1 million property, your monthly loan repayment are calculated as per the chart below. It is important to know how much of your monthly loan you would have to pay in cash and how long you would have to make these payments for to protect yourself against defaulting on the loan.
Servicing
Purpose Owner Occupied Investment
Loan Amount $800,000 $500,000
* Monthly Payment $3,593 $2,246
@3.5%
* Assume 3.5% for medium term interest rate.
Other than loan instalments, you should also note that there are other ongoing payments like property tax, conservancy charges, maintenance fee, and insurance on your mortgage, fire and home contents. These payments cannot be covered by CPF and may add a sizeable amount to your monthly expenses. Thus, it is important to set aside sufficient cash for these payments.
Disposal
Always make a property purchase with the sale in mind. You will incur a Sellers Stamp Duty (SSD) if you sell your property before the fifth year of ownership. Depending on which year of ownership you sell your property, the SSD changes on a progressively decreasing scale, ranging from 16 per cent to 4 per cent.
Hence, before making the purchase, you should decide on your future intentions. For example, decide how long you intend to hold on to it, in case you need to pay the seller's stamp duty should you have to exit the market before the five-year mark.
This article is contributed by Marianne Khoo, Manager (Collaborative Investments) & Chew Ching Lien, Head (Mortgage Advisory) from REMS Advisors. REMS is a research-driven advisory company that assists investors in identifying the optimal real estate solutions. They can be reached at [email protected].
Sunday Classified Properties, The New Paper On Sunday, 13 April 2014, Pg 32
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