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