How to Save to Buy First House

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8 Action Tips
How to Save Money to Buy Your First House

How to save money to buy your first house

To many young couples, owning a house in Singapore is the first step to building your home nest and having a family. There is another growing trend in Singapore for singles on reaching 35 years old, to secure a housing of own liking and own space for individualism.

It may sound daunting how to save money to buy a house for first-timers but taking consistent steps will lead to more certainty in reaching your end goal. The focus is really to put these 8 tips how to save money to buy your first house into action.

With these small tips on how to save to buy a home, you will be pleasantly amazed to realise how your savings have grown and very soon able to secure your first dream home with a downpayment.

1/.. Figure out your goal

Before you can map out a plan, you need to have a target in mind.  In Singapore, an average three-room HDB resale flat in Punggol will cost between $340,000 to $395,000 largely depending on factors like floor level, proximity to amenities, orientation and the age of the flat.  A four-room HDB resale flat in the same Punggol town will cost approximately $450,000 in the medium range.  HDB resale prices can be searchable from the HDB official website.

No matter which type of housing you are planning for, whether a public housing or a private condominium, it is recommended to research to find out what you really want to, where is the desired location, how much it cost and stick to your target. 

Begin with the end figure in mind will give visibility on proof planning how to achieve your objective.  Be realistic and buy your first house within manageable means.  There are other commitments and your housing budget is dependent on a landslide of factors—your income, debts, and responsibilities and make sure you have set aside funds for these as well.

Don’t freak out, countless Singaporeans have managed to save to buy the first home.

2/.. Know your figure—and track it

Now you know the specific figure, play around with online mortgage calculator tools that are readily available to estimate the monthly mortgage.  From there, you can calculate how much you need to prepare for deposit, and the monthly loan instalment you can expect to pay for any shortfall that is financed by a housing loan. To check out bank rates, you can try icompareloan website which shows new loan mortgage rates by most banks in Singapore for a good sensing, however it is best to talk to a certified mortgage planner to get verified rates and find out more.

Assuming your research shows that you can expect to pay $450,000 for a 4-room HDB resale flat, you will need to breakdown by the sources of funding.  Broadly, there are three ways of fundings for your first home, by cash savings, CPF contributions, and a housing loan.

The next step is to take stock of your CPF contributions. 

3/.. Ensure your CPF contributions are in order

As a salaried employee working for your organization, you and your employer makes regular contribution to your CPF Account based on a % of your gross salary depending on the age group.  Your CPF contributions is one critical source of funding to buying your first home. If you are self-employed, you will also have accumulated some self-contribution to your CPF Account.

If you are eligible for a HDB Concessionary Loan, the Loan To Value (LTV) Ratio is 90% meaning you can borrow up to 90% of the flat’s valuation price. The balance 10% has to be in cash or from your CPF Ordinary Account (OA).  To ensure the remaining tenure of the HDB flat can cover the youngest owner to at least 95 years of age, HDB announced in May 2019 to pro-rate the 90% LTV for HDB Concessionary loans according to the new guidelines, in other words, the 90% LTV could be further reduced.

If you are considering to take advantage of the low bank rates and opt for a bank loan instead, the LTV Ratio is 75%, meaning 5% must be paid in cash while the balance 20% is either CPF OA contributions or cash if the CPF contributions is insufficient)

If the price of the flat is $500,000, and assuming that you are going for a HDB Concessionary Loan, you must have at least $50,000 in cash for the down payment. If you haven’t accumulated this amount in your CPF, it can be painful to part with it from your bank account.

Incidential costs like the legal conveyancing fees can be paid from your CPF OA if sufficient.  Monthly loan repayments can also be paid from your CPF OA if sufficient.  Where the CPF OA is not enough, the way is to pay these from your own cash savings.  Know your CPF OA by logging on to MyCPF online with your SingPass.

4/.. Save at least 20% of your gross income

To put aside at least 20% of your gross income for saving to buy first house, is a yardstick.

It serves as a contingency cash in circumstances when your CPF OA is insufficient for the down payment, or if you do not manage to get the maximium LTV 90% for HDB loan or the bank did not approve the maximum 75% bank loan. 

There are cases whereby HDB or the bank may choose to give a lower LTV to borrowers after their assessment.  Some reasons that could lower your LTV include:

  • Outstanding home loans
  • Remaining lease on the property
  • Location and state of the property
  • Your age and loan tenure
  • Your credit score

If you don’t have cash savings, and you can’t get fulfil the shortfall from CPF OA or you cannot manage to get the necessary loan quantum from HDB or the bank, you may end up looking for some borrowings.  We won’t want you to resort to borrowing from friends, relatives, or illegal money lenders.

5/.. Set an automatic deduction in a separate account for the savings in Point 4

Say your gross income is $5,000 a month, and you decided to allocate 25%, which is $1,250 towards savings to buy first house. 

Make a completely separate bank account that is just for savings to buy first house.  Make it a recurring automatic set-up so the $1,250 is taken out the same day you get paid and you won’t miss it.  You won’t even see this money in your usual bank account that you use for everything.  Since you have $1,250 less into your usual bank account, you will resist buying frivolous items.

Start doing according to your timeline target.  If you set a timeline of 12 months to own your first house, you will have to indicate your recurring transfer over 12 months at the start month for one time set-up and the rest of the months will be taken care by automatic transfers.  At the end of 12th month, you will be most delighted to see an accumulated $15,000 of savings in your separate account.

6/.. Keep away from buying a car

Don’t buy a car before buying your first home.  This is because a car loan counts into a debt obligation which the lender (HDB or the bank) will take into account when calculating your Total Debt Servicing Ration (TSDR).  In short, TDSR measures your overall debt obligations against your income.

If you earn $5,000 a month, for example, and you have debts (including a car loan) amounting $2,000, you would have a TDSR of 60%.

You may only be granted with a lower loan quantum or you ended up having to dispose your car or clear out your debts before trying to put up your loan approval, which can be a loss of time, extra efforts and addtional costs. 

As such, it does not make sense to buy a car before buying your first house.  The five-year car loan will dent your TDSR and you have a hard time to secure a loan to finance your ideal house.   There are other easy alternatives to car ownership, like taking taxis, car pooling, public transport.

7/.. Pay off your credit card bills in full

Most credit cards companies in Singapore give incentives to card holders to spend, while enjoying some savings as you spend – in the right way.  That means having the discipline to spend what is really needed and making full payment of the credit card bills each time without roll-over debt. 

When you lose sight of your spending and spend beyond your means, you find yourself in a rollover debt balance, which means you will be saddled with a high credit card interest of 24% per annum.  Your cash savings will go towards repaying the recurring high interest and the principal. 

Or if you are late in credit card payment or have a history of making minimum repayments, this will implicate your credit rating.  The lender (HDB or the bank) may not grant you the full loan, or to reject your application entirely.  Henceforth, it is very crucial to set proper credit card discipline at the onset.  If you have a handful of credit cards in your wallet that you rarely used, this is the chance to take stock and cancel those credit cards that you don’t see the value in keeping.  Maintain at least six months of clean records (no rollover debt in credit card repayment) before applying for housing loans whether from HDB or the bank.  

8/.. Mindful of Bleeders

It is about being conscious of your spending.  One way is to scrutinise your bank account as well as your credit card bill each time before payment.  See how much subscription you have set-up for payment each month, for example your home fibre broadband subscription.  Then, get serious with how much you actually need them or if there is a possibility to downgrade the contract to a lower tier subscription after assessing your usage is not so excessive afterall, for example.

One helpful way is to ask yourself questions like, “Am I really using this?” “Can I let go of this for a year?” or “Is there another way to save?” This tip will help you to stem out wasteful expenditure or subscription that gets silently charged to your credit bill automatically each month.

Conclusion:

Share your goals and your plans with your loved ones so they can be more understanding of changes in your spending habits, for example, instead of spending on a lavish dinner at a restaurant, you can suggest to cook a warm hearty meal at home to celebrate your parent’s birthday. Articulating your plan to trusted people will help you to take ownership and keep your goals firm in mind.  Your supportive network will be more willing to give you more ideas when you need them to help, too.  Happy saving to buy first home!

8 Action Tips How to Save Money to Buy Your First House.  An Article Curated by the Author, Happy Homes.  Copyright Reserved.

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