Calculating your financial liabilities when purchasing your first condo can be tricky. If this is your first condo purchase, keep in mind the factors that I am going to explain in detail later.
How Much Will You Need to Pay for Downpayment
The downpayment can be broken down into two components. Cash and CPF funds. The downpayment largely depends on how much the banks are willing to loan you. Based on MAS regulations, banks will need to fulfill the Total Debt Servicing Ratio (TDSR) for their borrowers.
Furthermore, Loan-To-Value limits and the loan tenure will have to be considered for the disbursement of your housing loan.
In addition, banks do have their own internal framework to release loans that are subject to closer purview for their borrowers.
Total Debt Servicing Ratio
Depending on your TDSR,
Borrowers are able to up to 60% of your gross monthly income with a haircut of 30% to variable income and rental income.
For example, if John is earning up to $5,000/month, and earning $2,000 of variable income in the last 12 months;
Monthly Variable Income: $2,000 / 12 = $166.66/month
70% Haircut: 70% * $166.66 = $116.66/month
Total Monthly Income: $5,000 + $116.66 = $5,116.66/month
60% TDSR Limit: 60% * $5,116.66 = $3,069.99/month
John will be able to borrow up to $3,069.00 every month.
Loan-To-Value Limits and Loan Tenure
The maximum Loan-to-Value (LTV) that you will receive can be up to 75%. However, this is closely linked to other factors such as the number of existing loans, your income is drawn and loan tenure.
In addition, most loans are given up to 30 years for private properties. In the case of going for a stretch tenure of over 30 years, the maximum LTV falls from 75% to 55%.
If you are serving an existing housing loan, your loan to valuation immediately drops to 45% or 25% (stretch tenure)
How Much for Cash Upfront?
After calculation of TDSR, LTV, and loan tenure, you are ready to calculate the amount of cash downpayment! If you do not have any housing loans and are currently given an LTV of 75% (max) by the banks, you will need to come up with an upfront of 5% cash for your condo downpayment, while the remainder of 20% can be CPF funds.
Take note this is also applicable to resale condo purchase in the open market, but there might be some differences. Some Option to Purchase (OTP) agreement might request up to 10% in cash when the option is exercised.
Different Forms of Downpayment Schemes
For new launch condos which are no longer Building Under Construction (BUC) status, they are offered an alternative scheme. These alternative schemes differ from one another slightly, as the common points are that they might result in a slightly more expensive unit, and deferred payment of the remaining purchase price after signing the Sales & Purchase (S&P) agreement.
I covered the different downpayment schemes in my article, The Ultimate New Launch Property Guide in Singapore for 2020.
Miscellaneous Fees That Require Cash Payment
Stamp Duties
Stamp duties are payable by CPF or with cash. However, stamp duties are paid with cash upfront. This is because the fees will be made payable within 14 days from the date of the S&P agreement or date of acceptance of the option to purchase. Failing to meet the dateline will incur penalties.
Reimbursement of the stamp duties from your CPF accounts can be made later.
Professional Legal Fees (Conveyance Fee)
Don’t forget that conveyancing is part of the process when transferring a title deed. Professional legal fees are not to be paid with CPF, and only in cash.
Professional legal fees will cost on average $2,500-$3,000.
Summary
I hope that this article gives you a clearer understanding of the cash downpayment that is required for resale condo or new launch condo purchases.
For most Singaporean, the minimum cash downpayment will be around 5% of the transacted price.
In addition, other cash payments will be stamp duties. This will be reimbursed to you from your CPF accounts later.
Need help to figure out your total cash outlay? Contact me (Joshua) at +65 96329840 or send your queries to estatemagnates@gmail.com! Our consultations do not have a charge, so let me assist you! Let us discuss the steps that you can take to achieve your property investment goals.
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