By Lynette Tan
If you’ve only got a minute:
- Saving for your home’s downpayment may seem daunting at first. Having realistic goals of your dream home and breaking it down into baby steps can help you achieve your savings goal.
- Use the DBS MyHome Planner to help you estimate how much downpayment you need, and work back on the monthly savings you need.
- While saving for your downpayment, consider low-risk investments to grow your money while keeping them liquid.
Buying your first home is a significant milestone, but the financial commitment can often feel overwhelming. Navigating today’s housing market requires careful planning and a clear understanding of your financial standing.
With rising home prices and fluctuating interest rates, prospective homeowners need a solid strategy to save for a downpayment and manage the ongoing expenses of owning a property.
Step 1: Define your “dream home”
Many of us have dreams of how our homes would look like. While dreaming big is important, it's equally crucial to temper your aspirations with realistic expectations.
The type of housing, location, size and eligibility for housing grants can affect the price you pay. Be honest about what you can comfortably afford, considering not only the purchase price but also the related costs of homeownership, such as property taxes, insurance, and potential maintenance expenses. Researching current market prices in your desired area will give you a better understanding of what’s attainable within your financial reach.
Homeownership is a long-term commitment, not a short-term goal. It requires careful planning, diligent saving and a willingness to adapt to changing circumstances. By defining your goals realistically and understanding the long-term implications of homeownership, you'll be better equipped to navigate the path to owning your first home successfully.
Step 2: Review your current finances
With a goal in mind, now you need to figure out where you are currently, before planning on how to get there. Understanding your current financial health is paramount before embarking on the journey to homeownership.
Address any existing debts you may have. Student loans, credit card balances and other outstanding debts can significantly impact your savings plan. Create a plan to manage these debts effectively, prioritising high-interest debts and exploring options like debt consolidation or balance transfers. Minimising your debt burden not only improves your financial standing but also increases your borrowing power in future.
Next, track your income and expenses meticulously, categorising them to identify areas where you can potentially cut back. By understanding where your money goes, you can pinpoint areas for potential savings and redirect those funds toward your downpayment goal.
Step 3: Create a savings plan
Saving for a downpayment is often the most significant hurdle in the home-buying process as it requires a large sum of money. Currently, the downpayment for both HDB or private properties using either HDB or bank loan is at 25%.
The main difference is that for a HDB loan, you can use your CPF money to finance the entire 25%, while you need a minimum of 5% cash for a bank mortgage loan.
You can use the DBS MyHome Planner to help you estimate how much downpayment you need by entering the price of a home. Once you've determined your target downpayment amount, establish a realistic savings timeline. Consider your current income, expenses, and the amount you can comfortably save each month.
For example, if you are looking to buy an HDB flat of S$650,000 you would need a downpayment of $162,500. Assuming you are taking a bank loan, you will need to pay 5% in cash (S$32,500) and the rest of $130,000 in cash/CPF. You can then work back with your own timeline and break it down into a monthly amount you need to save.
Use a savings calculator to estimate how long it will take to reach your goal based on different savings rates. Be flexible and adjust your timeline if necessary, acknowledging that life events and unexpected expenses can sometimes impact your progress. A well-defined timeline provides a clear roadmap and keeps you motivated throughout your savings journey.
A simple yet effective strategy for consistent saving is to automate the process. Set up automatic transfers from your salary-crediting account to a dedicated savings account specifically earmarked for your downpayment. Even small, regular contributions can add up significantly over time. Treat these transfers like non-negotiable expenses, ensuring that the money is consistently set aside towards your goal. Automating your savings removes the temptation to spend the money elsewhere and makes saving a seamless part of your financial routine.
Step 4: Maximise Your Savings
Saving for your home’s downpayment may typically take a few years so it’s important to make your savings work harder in the process. Maximising your savings for a home downpayment while keeping your funds liquid and low risk requires a balanced approach. Here are some strategies to consider:
- High-Yield Savings Accounts
High-yield accounts such as the DBS Multiplier account can offer higher interest rates than traditional savings accounts, allowing your money to grow faster. They are also highly liquid, meaning you can access your funds easily when needed.
- Short Duration Funds/ Money Market Funds
Short duration funds generally offer interest rates comparable to or slightly higher than high-yield savings accounts. They also provide easy access to your funds and are typically low risk, helping you to grow your funds at a steady rate. You can check out the SaveUp digiPortfolio here.
- Singapore Savings Bonds (SSBs)
SSBs are a type of low-risk government bond offered by the Singapore government. They offer a safe and relatively liquid way to save, with interest rates that generally increase over time. You can redeem your SSBs any time, though you may not receive the full interest if redeemed before maturity. Their fixed interest payments can also help you forecast your savings growth.
Other than maximising your savings, you can also cut unnecessary expenses to save more, and make extra contributions whenever possible, such as saving any windfalls, like bonuses or cash gifts, to your downpayment fund.
By combining these strategies and diligently monitoring your progress, you can effectively maximise your savings while maintaining the necessary liquidity and minimising risk as you work towards your home downpayment goal.
Conclusion
Saving for your first home is a significant undertaking, but a rewarding one. From diligently budgeting and exploring avenues for increased income to strategically maximising your savings and seeking expert advice, the journey towards homeownership requires focus and planning. Remember to regularly track your progress, adjusting your strategy as needed, and celebrate each milestone achieved. While the path might present challenges, maintaining your motivation and keeping your eyes on the prize will ultimately lead you to the joy and fulfilment of owning your own home.
