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05 Dec 2019
SOURCE: CPF Board
Buying a home is a huge commitment. If you are planning to purchase a new home for the first time, knowing how much you can afford is essential.
Use the following four questions to get you started on mapping out your finances for a new Build-to-Order (BTO) flat!
Your down payment will probably be the first big ticket item in your home ownership journey. Depending on whether you take up an HDB housing loan or a bank loan, how you can pay for your down payment will differ.
The Loan to Value (LTV) limit determines the maximum amount an individual can borrow for a housing loan.
If you are taking an HDB loan, the LTV is 90% of the flat’s value. The remaining 10% is the required down payment which you can use your CPF Ordinary Account (OA) savings to pay for in full.
The LTV for a bank loan is 75% of the flat’s value. You are required to pay at least 5% in cash. The remaining 20% can be paid through a combination of cash and your CPF OA savings.
There is a limit on how much money you can borrow when you take a loan to purchase an HDB flat or an Executive Condominium bought directly from a developer.
This limit known as the Mortgage Servicing Ratio (MSR) caps the monthly housing instalment at 30% of a borrower’s gross monthly income.
Besides the MSR, you will also have to factor in the Total Debt Servicing Ratio (TDSR), which limits the amount you can borrow for a mortgage loan to 60% of your gross monthly income less any outstanding debts you have.
The TDSR and MSR work together to ensure you do not buy a home beyond your current means and end up straining your finances every month.
Read more: How the TDSR and MSR works
Your CPF savings are meant for your retirement needs. That is why there are limits in place to help you set aside savings for your golden years, even as you use your CPF savings for housing needs.
If you are a first-time BTO buyer with an HDB loan, you can choose to use up all your CPF OA savings, or set up to $20,000 aside for future needs.
If you are taking a bank loan for your BTO flat, you and your co-owners (if any) may use all your available CPF OA savings up to the purchase price or the valuation price of the property at the time of purchase, whichever is lower.
Thereafter, if your housing loan is still outstanding, the amount of CPF savings allowed for use for your property will increase by another 20% if you can set aside the applicable Basic Retirement Sum.
Your home is possibly the biggest purchase of your life. Therefore, it is always advisable to have it protected, particularly against the unexpected.
Besides the fire insurance that is mandatory and required by HDB, you may want to consider getting home insurance for peace of mind.
The Home Protection Scheme (HPS) pays off your outstanding housing loan up to the sum assured in the event of death or permanent incapacity. If you are using your CPF savings to pay for your monthly housing loan instalments, HPS is required. If you are using cash, it is optional for you to purchase the HPS.
While exploring your insurance options, remember to review different plans to choose a policy that fits your budget and offers the right coverage.
Information accurate as at 5/12/2019.