Budgeting for your first home

Budgeting for your first home

For most Singaporeans, buying their first home is a huge milestone that usually goes hand-in-hand with getting married - either that, or turning 35 and ready to get your own place.

But between the excitement of browsing interior design ideas and listening to well-meaning relatives’ feng shui advice, it is important to think carefully about the finances involved in buying a home.

Since your new home is likely the most expensive purchase in your life so far, it can be difficult to budget for. But the last thing you want in this exciting new chapter of your life is to be blindsided by unexpected costs.

Key Factors to Consider

It goes without saying that the cost of your home is greatly dependent on the property type. Depending on whether it’s an HDB BTO, HDB resale, executive condominium, private condominium or a landed house, your home can cost anything from S$300,000 to S$3 million or more.

Other factors that impact home prices are location, amenities, remaining lease, and the availability of housing grants.

If you haven’t the faintest idea which property types are within reach, use the MyHome planning tool to calculate your maximum loan amount and work out an appropriate budget. You can also check your eligibility status for various HDB types.

Once you have decided on a property type and price range, it’s time to move on to the practical monetary considerations. It comes down to a few factors:

Immediate costs
  • Your home loan
  • Your down payment amount
Future costs

These factors are all interlinked, but a good way to think about it is in terms of the immediate costs (down payment, which depends on your home loan) and future costs (monthly repayments and loan period).

1) Immediate costs: Estimating your down payment

For many home buyers in Singapore, the down payment is the single biggest financial concern.

The down payment typically needs to be paid at the point of official purchase. Depending on the home buying process (which varies with housing type), the down payment is due about 1 to 4 months from exercising the option to purchase.

And yes, that’s the case even for HDB BTOs and condos under construction - the down payment is due before your home is even in existence.  

Depending on whether you take an HDB loan or a bank loan, the minimum down payment can vary quite a bit. For starters, the down payment is 10% with an HDB loan, and 25% with a bank loan.

Furthermore, there are variations on whether you can pay this by cash and/or your Central Provident Fund (CPF) savings.

Let’s take a S$500,000 HDB flat as an example.

Budgeting for your first home

If you already have your heart set on a particular property and know its price, you can use the MyHome planning tool to quickly determine the down payment needed for your dream home. Alternatively, if you have some money saved up for the down payment, but have not picked a home yet, you can use it to find out what property price range you should be looking at.

2) Future costs: Servicing your home loan

The other part of the home loan equation is, of course, the mortgage, which will impact your life (for decades, in some cases!).

Unlike the minimum down payment, which is quite simple to calculate, the monthly repayment on your mortgage is a more complex affair. It largely depends on the loan amount and loan tenure you choose.

For example, a couple buying a S$500,000 HDB flat and opting for a 25-year bank loan can expect to pay about S$1,572 to S$1,683 a month. If they are Singaporeans, this amount can come from their CPF Ordinary Account, regardless of property type.

Budgeting for your first home

If they decide to shorten the loan tenure to 15 years, the monthly repayment shoots up S$2,396 to S$2,501. This makes them almost S$1,000 “poorer” (in terms of cash) every month, which may leave them cash-strapped during emergencies or unexpected expenses.

For first-time home buyers, it is better to prioritise what is a comfortable monthly repayment amount, andthenpick the loan tenure based on that.

Bear in mind also that the government has rules, known as Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR), to prevent borrowers from committing to monthly repayments that are higher than they canactually handle.

It all sounds rather complicated, but you can cut out the guesswork by using the MyHome planning tool. This tool calculates your monthly instalments while taking your loan type, loan tenure, MSR and TDSR into account.

It’s Not Over Yet! Other Costs to Budget for

Budgeting for your first home

You’ve considered the down payment and monthly recurring loan payments – that’s a good first step! But don’t forget that you have a life outside of buying a home, too.

For couples who are about to tie the knot, buying your first home tends to happen concurrently with other costly endeavours: Getting married, going on a honeymoon, even planning for a baby.Once you get the keys, don’t forget that you’ll need to renovate your house, furnish it, and buy the necessary electronics and appliances.

And for the first time in your life, you will have to pay for your own utilities, groceries, home maintenance, conservancy charges, property tax, home and fire insurance premiums… The list goes on.

Bear in mind that these costs are add-ons on top of your mortgage So, in your first few years of moving into your new home, you can expect quite a significant increase in your expenses.

Tips on saving on home repayments

Since you will likely be servicing your home loan for a long time, it is worthwhile to consider ways to reduce the overall amount you are paying.

• Consider not using your CPF to repay the monthly instalments

Some may think that is a good idea to use their CPF to pay off their monthly loan instalments, since that leaves them with more disposable cash. However, using your CPF monies to pay off your monthly loan repayments also means you accrue more interest that you’d need to return to your CPF account the day you decide to sell your house.

If you are using an HDB home loan and using your CPF to pay off the monthly mortgage, do note that you are bearing the opportunity cost of not earning 2.5% on the money that would have grown in your CPF account!

• Use a bank loan instead of an HDB loan

If you are able to pay the 25% down payment of your property, it might make more financial sense for you to take up a bank loan instead of an HDB loan. In the current low interest rate environment, bank home loans are typically lower compared to the 2.6% charged by the HDB home loan. The difference in rate can help you save a few hundred dollars a month, and potentially a four-figure sum per year!

• Refinance/reprice

Choosing a mortgage loan is not the end of your home loan journey; that’s if you aren’t keen to enjoy lower loan payments in the long-term. After your loan’s lock-in period, you can refinance or reprice your home loan to save more money.

Refinancing your mortgage refers to switching to a loan package with a different bank, while repricing or conversion happens when you switch to a different home loan within the same bank. While you can’t refinance until the lock-in period is over, you can however, look for a home loan that does not come with too many provisions preventing you from refinancing your loan. This could mean avoiding the claw back of certain privileges or having to pay a high conversion/refinancing fee that could erase your interest savings. Some banks do offer a one-time free conversion with their mortgage loan package when you first sign up, so it would be wise to enquire about that.

• Make use of higher interest earning accounts

You might have already heard of the DBS Multiplier account and how it can help you earn higher interest when you satisfy the different eligibility conditions. Having a housing loan tagged to the same account counts as an eligible transaction, which means you get to earn higher interest just by increasing the number of different transaction with one bank account. What’s not to like about that?

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