Your housing fund is finally coming together and you are close to taking the next step in your adulthood – to own a property of you call your own. But before you succumb to the adrenaline rush and commit fully to a property in haste, halt your steps. After all, there are 5 key concepts you should take note of before you invest in a roof over your head – take note of them before doing so!
Concept #1: Plan your budget wisely
You may have a good idea of how to handle your own finances given that your housing fund is sufficient to purchase your dream home. However, take note that you may not have calculated all the necessary expenses since it is very well your first experience in purchasing property.
For one, take note of the renovation costs you plan to fork out. Not every room has the interior design that you find aesthetically appealing, and before you know it, you may be paying up to 5 figures or more just to revamp your new home. Therefore, it is advisable to plan a budget aside for renovation that is separated from the one set for purchasing of the property. Schedule a meetup with a reliable renovation firm to check the range of prices you will most likely have to fork out to complete the renovations you have in mind. This is so that you can have a good idea of what to expect, and thus shift your finances accordingly.
Concept #2: Building up your portfolio
If you are unaware, borrowing from the bank to sustain your property is not always widely accessible. Many of us live by paying cash right away and have no practice of using credit card. As such, you might be in danger of being branded by the bank as an unknown individual that does not warrant sufficient trust to receive sufficient property loan.
As such, you might end up borrowing a smaller loan amount in comparison to your peers that use their credit card frequently even though you may see yourself with a better credit record. Therefore, always check with the bank the amount you can loan before committing to a property, and buffer sufficient time to build up your credit worthiness.
Concept #3: Planning to pay with your CPF? Think again.
It may be natural for everyone to want to pay their property loans with CPF. After all, it is an amount that cannot be drawn at the moment, and how better to utilize it than to pay your property loan? I implore you to think again.
If you plan to use the property as a form of safe investment and intend to sell it away subsequently when the market is more lucrative, take note that you will have to return the entire amount used in CPF later on – every single cent used to pay the property loan. In fact, it also includes an additional 2.5% worth of compounded interest to your CPF account. You can also see that it works the same as using CPF to pay education loan. Hence, you cash will eventually be bounded to the CPF account which limits any form of liquidity.
Concept #4: Plan ahead and do not overcommit
Many of the first time property buyers believe that with the housing fund accumulated, they are easily able to fork out a sufficient amount to pay off monthly loans. Assumptions were made and a house over their capabilities were bought. Beware that things can happen, and before you know it, a bad economic crisis could hit and deprive you of employment opportunities. You lost that promotion you were certain of, or you could’ve even be sacked from the job abruptly. Suddenly, there was cash inflow, only loans that piled up against your savings.
Therefore, before you commit to a luxurious accommodation, make sure that you have a steady income that can well cover the loan, and ensure that you have a sufficient amount of cash reserve to tide over rainy days.
Concept #5: Tapping on what you deserve
Finally, know what you can claim and maximize them. Who doesn’t want to save up their money?
First let’s look at how to utilize HDB grants properly. If you or your partner decides to retire after plans of marrying and buying an accommodation, take note that HDB will take into account your income based on an annual basis. This means that even if you retire 3 months ago before applying for the HDB grant, the government will still consider your salary when calculating the maximum amount of HDB grant to be awarded. Therefore, calculate your retirement date if you are planning to do so.
Moving on, rental fee is something most property buyers miss – especially first time buyers. Do you know that once you have bought the accommodation, rent charges automatically applies? This means that if the seller plans to stay there for the next 3 months after the purchase agreement is established, he is obliged to pay you rent fees. Do not miss out on collecting this extra money which can be used to beef up your cash reserve, or cashed into interior designs.