Home Payday loans reviews 10 common misconceptions about buying a house in 2022 (you don’t want to be wrong) – Property Blog Singapore

10 common misconceptions about buying a house in 2022 (you don’t want to be wrong) – Property Blog Singapore

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If you last bought a home ten or more years ago, today’s real estate market might give you a headache. A lot has changed since then, so be prepared for some major differences. On top of that, there are age-old misconceptions about the transaction process that have persisted for years. We’ve rounded up some of the most common on this list; take note before buying:

1. Thinking you can hoard your CPF to maximize leverage on your home loan

The minimum down payment on a home is 15% when using an HDB loan, or 25% for bank loans (of which the first five percent must be cash).

However, note that if you have more than the minimum down payment in your ordinary CPF account (CPF OA), you must use all of it except up to $20,000. For instance:

Let’s say you have $120,000 in your CPF OA and the minimum down payment for your home is only $60,000. You cannot choose to pay only $60,000 and accumulate the remaining $60,000 in your CPF. You can at most keep $20,000 in your CPF only – $100,000 must be paid on account.

This is to prevent you from borrowing the largest possible amount.

2. Thinking that you can use an HDB loan for a CE, as long as it is not yet privatized

It does not matter whether the EC has been privatized or is still owned by HDB. You can never get an HDB loan for a CE.

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This means buyers should be prepared to cover the first five percent of costs with cash. Note that it is the same whether you are buying a resale EC or a new EC; even with the progressive payment system, the initial booking fee is still five percent.

This also means that the minimum deposit will be 25% (for resale) or 20% (for the progressive payment system). The first five percent is always cash, and the next part can be cash or CPF.

This also affects the following point:

3. You just need to meet the MSR for CEs

The Mortgage Service Ratio (MSR) caps monthly loan repayment at 30% of your monthly income.

The Total Debt Servicing Ratio (TDSR) caps your total debts – including credit cards, personal loans, etc. – 55% of your monthly income.

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For HDB properties, MSR still applies; so if you buy a CE, you must respect both HDB’s MSR requirement, as well as the bank’s TDSR requirement. In some cases, buyers have large debts and find that they can meet the MSR but not the TDSR.

Consider your existing debts carefully before deciding to buy.

4. You can fix your debt issues immediately before your home loan, to get approval in principle

Banks will use your credit report from the Credit Bureau of Singapore (CBS). However, it takes time for your CBS report to reflect changes in your debt situation. As such, buyers who attempt to settle their debt in a very short time before applying for a loan may still not get approval in principle; or they can be approved for a much smaller loan amount.

Most mortgage brokers advise you to start paying off your debts 12 months before your loan application, to ensure that everything is well reflected. Some brokers might be able to trade on your behalf, but it’s best not to take the risk.

Also, note that some issues in your credit report, such as frequent late payments or past defaults, are not instantly erased the moment you pay off your debts. It may take a few years for these to disappear.

The most notable issue here is bankruptcy: even if you’ve settled the debt and gotten your official discharge letter, it usually takes about five to seven years before you can be approved for most home loans.

(Non-bank financial institutions can still provide you with a home loan upon release, but interest rates are often higher. Consult a qualified mortgage broker for assistance, and don’t go to payday lenders).

One last point as it is less well known, but having regular use of your credit card (whether or not you pay on time) can also contribute to your loan eligibility. This can happen if you anticipate that getting a loan may be difficult, so watch how many credit cards you have on hand.

5. You can respect the TDSR because you calculated the numbers based on the current interest rate

To ensure that you can cope with rising interest rates, the bank will use a rate of 3.5% for the TDSR. So a $1 million loan, over 25 years, should cost about $5,006 per month.

That’s higher than the actual rate (at the time of writing, around $4,300 per month). If you find that your loan is being rejected, that may be the problem.

6. A bridging loan will solve all the problems of waiting for the proceeds of the sale

The bridging loan is meant to temporarily cover the costs of the new home, until the proceeds from the sale of your old home come in. But if you don’t have a real estate agent, mortgage broker or another expert to help you, this can be tricky. tool to use.

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The first thing to know is that bridging loans have a maximum loan term of only six months. This is important if you are waiting for the bulk product, which can sometimes take up to a full year. You need to double-check the time limits, lest you be saddled with a giant debt repayment before the money is available.

The second thing to note is that bridging loans don’t come cheap (although it’s safe to say that it’s worth it in terms of the convenience it offers). The interest rate on most bridging loans is between 5 and 6%, or about 0.5 to 1.5% per month. This before adding various administrative costs, which differ from bank to bank.

It’s usually best to plan your time frame so that a bridging loan isn’t necessary at all.

7. When choosing Tenancy In Common, the side with the larger share controls ownership

When buying your property (including your apartment), you will be asked to declare the mode of ownership. This is whether you want to be joint tenants (all borrowers count as one entity) or joint tenant (different borrowers may own different percentages of the property).

Some Singaporeans have the mistaken impression that, for them, a higher percentage of ownership means more property rights; but it doesn’t work like this: even if a borrower has only one percent of the property, he still has the same rights to benefit from it.

This means, for example, that the person who owns 99% of the property cannot unilaterally decide to sell the property or evict the person who owns only one percent.

Percentage ownership is important in other areas, such as distribution of sale proceeds, survival, stamp duty, when transferring their share, etc. But it’s not like owning a business, where having the biggest stake means you can make the decisions.

8. Underestimating stamp duties, when the asking price is higher than the valuation

Buyers Stamp Duty (BSD) is based on price or valuation, whichever is upper. So if you buy a property valued at $1.5 million, but sold for $1.75 million, your BSD would be $54,600 (based on a price of $1.75 million) instead of 44 $600 (based on an appraisal of $1.5 million).

This means that prices above the valuation not only cause a higher outlay of cash; they also charge you higher stamp duty.

9. Assuming you’ll only pay one home loan when upgrading

If you can’t get the proceeds from the sale to pay off your existing home loan, but you go ahead and buy a new property, you may be struggling with both short term loans.

Down payment differences with without existing loan

This can lead to an administrative glitch – the bank cannot grant you the full loan amount of 75%, if you have an outstanding home loan. You may need to prove that your existing property is sold (i.e. the OTP is signed) before you can get the loan.

We also understand from some brokers that banks may reject you anyway, even if you signed an OTP for your old house – they may insist that you pay off the existing loan before taking the new one, because having two loans at the same time could blow your TDSR Limit.

It can also strain your cash flow if you have to repay two loans at once for a few months.

10. If you decide not to buy, you lose at most the deposit

If you have exercised an option to purchase (OTP) and the seller takes legal action, the court box compel you to make the purchase. So, even if you have the disposable income to skip the initial deposit, it’s unwise to assume that you can withdraw from “any” trade later.

Be absolutely certain of your purchase before signing anything.

For more information and strategies on buying your home, follow us on Stacked. We will also provide you with in-depth reviews of new and resale developments.