Can I afford it? How much should I set aside? How much can I borrow? We understand buying a property can be a complicated process. So be it a private or HDB property you are purchasing, we are here to take you through, step by step.
|Afford a Home|
While property-investing has been a popular route to wealth, it may not be a sure win thing as property value depends on various factors:
If you are cash-rich, consider buying a property when prices are depressed and hold on till prices improve. However, if you are concerned about income stability, especially during an economic downturn, then you should think twice before investing.
Time your investment. Buy when property prices are appreciating, and sell before they decline. Experience and constant monitoring of market movements will help you make better decisions. As properties are classified generally as long-term assets, you must have the financial resources to stay invested for some years, and shouldnt bet on making a quick profit on the property.
Equip yourself with the latest government policies, property developers plans and banks practices as these may affect property prices.
Be realistic when you calculate the cost of purchase and the expected investment return. In particular, assess how you will be affected if the property market falls. Thats when your expected return/income will fall, while you still have to manage on-going mortgage costs.
A well-maintained property in a prime location increases your rental yield or ability to fetch a good selling price. Its thus important to make a physical inspection to ensure that the environment is suitable for occupation or investment.
In addition, buying a property may have a significant impact on your financial health, even your retirement nest-egg. Hence, it is imperative that you understand the costs and profits thoroughly before investing in property.
A portion of the purchase price that must be paid before an Option to Purchase (OTP)* is issued. The amount is negotiable and typically varies from 1% to 5% of the purchase price. The OTP will be valid for a period agreed by you and the seller, during which you own the sole right to purchase the property. To exercise the OTP, you will have to pay 5% or 10% of the purchase price less the booking fee. The first 5% of the purchase price must always be in cash and the balance can be a combination of cash and/or Central Provident Fund (CPF) savings^.
Stamp duty is imposed on documents executed for the sale and purchase of a property. Duty will be computed on the purchase price or market value of the property (whichever is higher).
Computation of Stamp Duty*
Duty payable at ad valorem of the purchase price (PP):
Stamp duty is to be paid within 14 days from the date of acceptance of the OTP or Sale and Purchase (S&P) Agreement. For more information, please visit www.iras.gov.sg.
* Stamp duty amount is subject to change.
The costs for legal services rendered in the purchase of the property and preparation of mortgage documentation relating to the bank loan, which may be paid via CPF.
A fee paid to the housing agent engaged for the purchase and/or sale of the property. The quantum or amount of the commission is based on a certain percentage (varying from 1% to 2%) of the purchase price.
|*||An OTP is a right or option given by the vendor of a property to an intending purchaser to buy the property at a specified price within a specified period of time (the validity period of the option).|
|^||Only the amount in your CPF Ordinary Account can be used.|
|#||An S&P Agreement is a formal contract between the buyer and seller for the sale and purchase of a property.|
The tax on all immovable properties (houses, buildings or land). All property owners are liable to pay property tax. It is payable based on a percentage (Tax Rate) of the Annual Value (AV) of a property. The AV of the property is the estimated annual rent of the property. The Tax Rate is 10% per annum but if you purchase and occupy a residential property, you can claim the concessionary rate of 4% per annum. For more information, please visit www.iras.gov.sg.
An insurance policy that covers the reinstatement value or outstanding loan, whichever is lower, in the event that the property it insures is destroyed by fire. The coverage does not include home renovations, moveable household contents and personal belongings.
A mortgage reducing term life insurance policy that provides for the repayment of your outstanding home loan in the event of Death, Terminal Illness or Total and Permanent Disability.
The insurance payment may be higher or lower than the outstanding home loan, depending on your choice of interest rate and the initial sum insured. To find out more, click here
Fees collected for the purpose of maintenance and use of common property (e.g. tennis courts, lifts, common areas, etc).
For home contents coverage, click here.
For furnishings coverage, click here.
|Qualify for Loan|
To facilitate your property purchase, you can take out a home loan with the bank. You can obtain a housing loan Approval In Principle (AIP)* from the bank before you commit to your purchase. This will give you a clearer picture of your loan eligibility.
Credit assessment checks that you will be subject to upon your request for a loan:
|*||An indication by the bank of the amount of loan that you are eligible for. However, an AIP does not constitute a binding loan offer. Further checks and conditions may be imposed by the bank, and the terms of the formal offer will also depend on the property that you intend to buy.|
Two main criteria banks use to access your loan eligibility:
A computation of your total monthly debt obligations (e.g., other home loan commitments, car loan, overdraft facilities, etc) to your total monthly gross income. This is to determine your repayment ability.
As a rule of thumb, your total financial commitment for loans per month should not exceed 40% of your household income.
The amount of loan on a property in relation to its value expressed in percentage. The maximum LTV at which banks in Singapore may finance your first property is 80% of the purchase price or property's current market value whichever is lower.
Factors that determine the LTV:
Which home loan should I choose?
At DBS, we offer a comprehensive range of home loan packages, with customisable rates, to suit your unique financing needs. In addition, we offer attractive renovation loans as well as bridging loans to help ease your cash flow as you wait for your property sale proceeds. Looking for a more economical way to access extra funds for property investment? You can also check out DBS Assetline, a secured overdraft facility.
|Search for Home|
Fix an appointment with the seller of the property to view the property, ensure it is in a satisfactory condition and check the asking price.
The Bank will provide an indicative value of the property from its panel of approved valuation companies.
You have to ensure that the following details provided are correct for an accurate indicative value:
For the list of details required, please refer to Your Dream Home Checklist.
What if the Bank's valuation of the property and purchase price differ?
In the event the Bank's valuation is lower than the purchase price, the purchaser has to pay the difference between the purchase price and the Bank's valuation using cash. As such, the cash required up-front will be higher so it is always important to know the valuation of the property before making any offer.
You will need to appoint a lawyer to do the following:
|Make an offer|
To make an offer, you have to place an option fee which varies:
Usually 1% of the purchase price. To exercise the OTP, you would have to make a further payment, usually 5% or 10% of the purchase price, less the option fee.
Usually up to S$1,000. To exercise the OTP, you have to pay up to S$5,000 which includes the option fee.
Once exercised, the OTP will be valid for a period agreed by both the buyer and seller. During this period, you will own the sole right to purchase the property.
For the bank to process your loan, you will need to submit these documents:
Additional documents may be requested on a case-by-case basis. Upon approval of your application, you will receive a Letter of Offer (LO)* from the Bank, stating the details such as loan amount, tenure and terms and conditions. Before signing the LO, you should ensure that you understand its contents entirely, as it becomes legally binding upon acceptance.
Once you have accepted the LO*, the Bank will then instruct the law firm and valuation company to proceed with the necessary mortgage documentation and valuation report respectively.
A caveat^ will be lodged by your lawyer with the Singapore Land Authority against the property.
|*||An LO is a formal offer of home loan from the bank, setting out the terms and conditions governing the home loan offered therein.|
|^||A caveat serves as a public notice that the person lodging it is claiming an interest in the property, and it will lapse 5 years from the date of lodgement, unless it is discharged or renewed.|
|Meet your Lawyer|
Your lawyer will help you with the following:
|Assist in Valuation|
|Pay Collect Keys|
Your lawyer will ensure that all the titles, legal requisitions, etc of the property are in order for your purchase. Your lawyer will then receive the funds on your behalf from the Bank and CPF Board to complete the purchase.
The legal fees are usually payable at this stage. Please check you receive the following:
The completion statement will show you the balance of the purchase price that you must pay after deducting any deposit, pro-rated property tax and utility charges, maintenance charges, and other applicable charges as well as any fees payable to the agent and the lawyer.
It is usually sent to you a few days before the legal completion date together with instructions on the mode of payment.
After you have settled the outstanding balance of the purchase price, the sellers lawyer will hand over the house keys and Transfer Document to your lawyer. Upon receipt of the Transfer Document, you assume the title of Owner.
Your lawyer will apply for the CT to be issued by the Singapore Land Authority on the same day. He will safeguard the CT until it is handed over to the mortgagee (the financing bank) if the property is mortgaged.
Collect the keys to your new home from your lawyer upon completion of your purchase, and upon receipt of TOP for uncompleted properties.
|Be Ready To Act|
Disclaimer: This document is for general information only, and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. It should not be relied upon as legal or financial advice. Whilst reasonable care has been taken to ensure the accuracy of the information herein, no warranty or representation is made as to its correctness or completeness. Content herein may be modified at any time without notice. DBS Bank accepts no liability whatsoever for any direct, indirect or consequential loss arising from any use or reliance
Note: The Association of Banks in Singapore (ABS) has published a consumer guide on home loans. You are encouraged to read the guide before committing to any home loan. The guide is available on the websites of ABS (www.abs.org.sg) and the Monetary Authority of Singapore (www.mas.gov.sg) in the four official languages. You may also obtain a copy of the guide at any of our branches