Buying a home is probably the biggest financial commitment for most Singaporeans. It is a long-term commitment which should be carefully planned upfront.
Before you start looking for a home to buy, first work out what you can afford as well as find out what you need to pay for. What you can afford depends on your current income, existing debt obligations and expenses, available savings as well as the loan amount you are eligible for.
Buying a home involves making some upfront payments, as well as monthly payments such as your housing loan instalments and conservancy charges.
Make sure you buy a home that you can afford in the long run.
To work out what you can afford, list the available resources you have to fund the upfront costs, as well as to pay ongoing mortgage payments and other expenses related to owning a home.
Ongoing expenses like property taxes, fire and mortgage insurance, conservancy and management service fees, cannot be paid for using CPF savings. Hence, you need to set aside sufficient cash for these monthly payments, in addition to meeting your current monthly living expenses and existing financial commitments. If you are taking out a floating rate loan, it is also sensible to have some buffer for possible interest rate rises in the future which could result in higher costs for you.
Also note that your lender may ask you to pay off some of the outstanding loan should the value of your property fall and the original loan to value ratio is exceeded. You may have to be prepared to dip into your savings for this purpose.
Avoid using all your CPF savings to finance your home. As you age, there will be reduced contributions to your CPF Ordinary Account. It is advisable to finish paying off your housing loan before you retire.
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