Getting a BTO flat needs major decision making. And yet, a successful BTO application is only one step of many, all of which requiring your careful consideration.
Here are some decisions you need to make before buying a BTO flat:
Should you clear your CPF (Central Provident Fund) OA?
Since August 2018, you are already allowed to retain up to $20,000 in your CPF Ordinary Account (OA). Before this update, it has always been a requirement to fully utilize your CPF OA funds to pay for the flat before taking up a HDB loan. Clearing your CPF OA can help reduce your housing loan amount.
Here are the pros if you leave a balance in your CPF OA:
- Buffer for the rainy days – You will still have funds to pay for your HDB installments through your CPF OA during unfortunate
- Money in your CPF OA earns a risk-free 2.5% interest per annum
- Earn an additional 1% interest rate paid on your first $60,000 of your combined CPF balances (with up to $20,000 from your OA).
HDB Loan vs Bank Loan?
You always need to decide whether you get an HDB or just a bank loan since these two differ from each other in one or two ways.
Here is a quick comparison of the two loans:
| HDB Loan | Bank Loan | |
| Interest Rate. | 2.6%
Guaranteed interest rate. |
1.3%-1.7%
Interest rates fluctuate and are almost never |
| Loan Tenure | Maximum 25 years, or up till the buyer is 65 years old (whichever is earlier). | Maximum 30 years. |
| Early Repayment Penalty | No penalty | About 1.5% of the remaining loan amount.
(Typically 3 years lock in period) |
| Downpayment Required | 10% (payable by CPF) | 25% (at least 5% has to be in cash) |
| Eligibility Criteria | – At least one buyer must be a Singapore citizen.
– Have not taken 2 or more HDB loans before (i.e. max two HDB loans). – Monthly household income less than $12,000. – Must not have owned or disposed of any private residential property in the 30 months before the date of application for an HLE letter. |
Understanding Your Home Loan Duration
A usual HDB loan has a tenure of 25 years, or till the buyer is 65 years old, whichever comes first. There is no early repayment penalty for an HDB loan that is why it makes sense to opt for the maximum loan tenure first.
If you do so, you and your partner now becomes more flexible in looking for funds and can always opt to repay the loan earlier. Some benefits of choosing a shorter home loan duration includes the fact that the interest you pay in total will be less than a loan with a longer duration.
Applying Under the Married Child Component Scheme (MCPS)
The MCPS encourages a married child to live close to their parents. Applying under the MCPS would increase your chances when you ballot for a flat.
To apply under the MCPS, your parents/ married child must be living within 4km of the flat you are applying for. However, take note that if your parents own more than one property, the property which they live in will be used for the proximity reference.
However, this arrangement will be locking your parents in for the next 5 years as there is a 5-year Minimum Occupation Period (MOP). This means that they need to continuous stay within 4km of your flat for 5 straight years. It is better if you will ask for your parents’ opinion first if this is an acceptable scheme for them. Most likely, they will agree if they got no plans to move in the next years.
Flat Size
Will you go for a 3-room, 4-room or 5-room?
Which flat size works best for you and your partner? Here are a few things to consider when deciding on the flat size:
- Whether you plan to have children. If you and your partner have plans to start a family, more rooms would suit your needs better.
- Whether you can afford it. The more rooms, the more expensive the house is.
- Whether the estate you are looking at offers that flat size. Some BTO estates such as the up-and-coming Feb 2019 BTO launch in Kallang/Whampoa do not offer 5-room flats.
Optional Component Scheme (OCS)
OCS is an opt-in scheme that aims to provide buyers with added convenience. Some of the items offered under OCS include:
- Floor finishes
- Sanitary fittings
- Internal doors.
While the benefits to opting in for the OCS are as follows:
- Your house will be closer to move-in conditions during key collection.
- You don’t have to pay for these items in cash because the price of the OCS items will be added on to your flat price.
Alright! Those are just some of the decisions to consider when buying your own BTO flat. Again, remember that this undertaking is not a game so you must always stay rational at all times.
