1st Time Resale Private Property Buyers.
Apart from understanding the costs and conditions for investment, it is also prudent to check out on your CPF matters.
Points to note:
1. If you are a HDB owner or occupier purchasing a private property, you will need to ensure that you comply with CPF rule on minimum occupation period.
2. You can use your CPF to purchase more than one property after setting aside in your
Ordinary and Special Accounts (including the amount used for investment from the Special Account) the prevailing Minimum Sum cash component if you are below 55 years, or the Minimum Sum cash component shortfall if you are aged 55 and above
What are your buying objectives?
You should have a clear investment strategy that set out goals and objectives in your purchase. It should address the following:
1. Long term/short term holding period
2. Sufficient available funds
3. Acceptable risk level
4. Rental yield VS Cash outflow
Rental yield is calculated as Annual rental of property over Price of property.
If you are looking to buy and resell for a profit, otherwise known as flipping, the returns can potentially be high but you do need to consider the financial costs before deciding if it is worthwhile to do so.
Costs
• Stamp Duty
• Legal Fees
• Realtor’s Fees
• Cancellation Fee / Full Redemption Fee for Bank Loan
• Interest Incurred on the Bank Loan
How does the CPF withdrawal limit affect my housing loan?
You should be aware that there are withdrawal limits on the use of CPF for housing. Once you reach the limits, you may have to pay the housing installments fully in cash. If you are using your CPF to pay your home loan, it is prudent to pay off your mortgage by the CPF withdrawal age of 55 due to the reduced CPF contribution rates after 55.
How do I qualify for a home loan?
You can obtain a housing loan In-principle Approval* from the bank before you commit to your purchase. This will give you a clearer picture of your loan eligibility.
Credit assessment checks that you will be subject to upon your request for a loan:
• Proof of regular income (e.g., Income Tax Notice of Assessment / latest computerised payslip / CPF contribution statement for the last 12 months)
• Credit bureau checks (e.g., Good payment records for credit cards / previous or existing loans, no previous blemishes such as discharged bankrupts)
* An indication by the bank that it will grant a prospective buyer a home loan. However, an In-principle Approval does not constitute a formal approval. Further checks and conditions may be imposed by the bank.
How much can I borrow?
Two criteria banks use to access your loan eligibility:
1. Financial Commitment-to-income Ratio
A computation of your total monthly debt obligations (e.g., other home loan commitments, car loan, overdraft facilities etc.) to your total monthly gross income. This is to determine your repayment ability over a specific tenure.
As a rule, your total financial commitment for loans per month cannot exceed 40% of your household income.
2. Loan-to-value (LTV) ratio
The amount of housing loan on a property in relation to its value expressed in percentage. The maximum LTV that banks in Singapore can legally finance: 80% of the purchase price or property's current market value whichever is lower. Do check with your bank for details.
Ensure Satisfactory Condition of Property
The seller and his agent are not obliged to ensure that the property you are about to buy is defect-free. As a precautionary measure, we recommend that you fix an appointment with the seller to inspect the property and enquire on the asking price before deciding on anything.
Things to note while viewing the property:
• Were there any additions or alterations?
• Were these additions or alterations approved by the relevant authorities?
If no approvals were obtained, do note that banks will only provide financing subject to the property being restored to its original condition.
How do I ensure satisfactory condition for uncompleted properties?
Uncompleted properties from licensed developers will include a 12-month defects liability period starting from the receipt of Notice of Vacant Possession by the home purchaser. The developer is obliged to rectify any defect which becomes apparent in the unit, common property or housing project. Please refer to your Sale & Purchase Agreement for the procedures involved in rectification of defects and claiming for the cost of rectification works.
Obtain the Current Market Value (CMV) of the property from the Bank
The Current Market Value (CMV) of the property is obtained through a panel of valuers approved by the banks. Banks do not provide their own valuations of property. The quantum of loan (Loan-to-Value) provided by the Bank will be based on the CMV of the property.
It is thus important that the following details provided by the developer / seller are accurate:
• Address of property
• Property type (Landed, Condominium, Others)
• Land / built-in area
• Freehold / leasehold (999 years/99 years)
• Renovation (how much was done and when)
• TOP Date
• Age of Property.
Will the Bank's valuation of the property and purchase price differ?
The Bank's valuation, obtained through its appointed panel of valuers, may be lower or higher than the purchase price. In the event the Bank's valuation is lower than the purchase price, the purchaser has to pay the difference between the purchase price and the bank's valuation using cash. As such, the cash required up-front will be higher.
Appoint a lawyer to help in the coordination of your purchase
You will need to appoint a lawyer to act for you in the purchase of the property.
The Bank will also need to appoint a lawyer for the mortgage documentation relating to the bank loan.
Minimise your legal costs by engaging a lawyer who can act for both the purchase of the property and mortgage documentation for the Bank. After securing a suitable candidate, get him to assist with the following:
• Title search on the property to determine if the seller is in fact the rightful owner
• Bankruptcy search on the seller to ensure that he is not a bankrupt
• Requisition searches (e.g., road lines, drainage etc. which may affect the value of the property)
• Vetting through the Option to Purchase (OTP) to ensure that it is in order
Most banks do provide legal subsidy for mortgage packages. Do check with your Realtor for more details.
Can I appoint any lawyer for the mortgage documentation for the Bank?
Banks have their own approved panel of lawyers who can act for the mortgage documentation on their behalf. Generally, most of the law firms are listed on the approved panel. Do note, however, that the law firm's insurance indemnity must be sufficient to cover the loan amount requested. Do check with your bank for a listing of its approved panel.
The seller must allow valuers to enter the unit and its premises for valuation checks, This is important as valuers need to submit the formal valuation of the property prior to any loan disbursement, and for submission to CPF Board for the release of CPF funds towards your purchase of the property.
Booking fee
A portion of the purchase price that must be paid before an Option to Purchase (OTP)* is issued. The amount is negotiable and is typically 1% to 5% of the purchase price. The OTP will be valid for a period agreed by you and the seller, usually 14 days, 18 days or 21 days, allows you to get the necessary financing from the bank and decide whether to purchase the property or not during which you own the sole right to purchase the property. The seller is not allowed to sell the property to another buyer during this period. If you do not exercise the Option within the stated period, the Option will expire and the seller is entitled to forfeit the 1% option money and sell the property to any other buyer. At the same time, it is recommended that you also endorsed on the Inventory List.
To exercise the OTP, you will sign it before your solicitor and pay 5% or 10% of the purchase price less the booking fee. This is usually held by the vendor's lawyer as stakeholders+ The first 5% of the purchase price must always be in cash and the balance can be a combination of cash and/or Central Provident Fund (CPF) savings^.
Stamp Duty
Stamp duty is imposed on documents executed for the sale and purchase of a property. Duty will be computed on the purchase price or market value of the property (whichever is higher).
For properties above S$300,000, stamp fee payable will be 3% of the purchase price minus S$5,400. The mortgage stamp fee is up to S$500, which is the amount payable for most mortgages.
Stamp duty is to be paid within 14 days from the date of acceptance of the OTP or Sale and Purchase (S&P) Agreement#. You pay the Stamp Duty through your solicitor. You will need to use cash or take up loans to pay the stamp duty first, and subsequently apply for reimbursement from your CPF when your lawyers submit your application to use CPF for the property purchase.
Legal Fees
The costs for legal services rendered in the purchase of the property and mortgage documentation relating to the bank loan, and which may be paid via CPF. For the buyer, the solicitor’s fees are typically 0.3-0.6% of the transaction value. In addition, there are extra legal fees if CPF is used to pay for the apartment. The seller pays typically 0.15% of the transaction value to his/her solicitor. Most banks do provide legal subsidy for mortgage packages.
Mortgage Fee
The banks typically charge an administration fee and valuation fee for the mortgage. These together are somewhere between S$200-300. In addition, you need to take out on insurance on the property for the bank to give out the mortgage.
Realtor's Commission and Fees
For private property, the realtor’s commission is paid by the seller - unless you have specifically appointed an agent as a representative. The seller typically pays 1-2% of the purchase price as commission on the sale.
Require financing for your Booking Fee?
Bank bridging loan can help you procure your dream home while you await the proceeds from the sale of your existing property.
* An OTP is a right or option given by the vendor of a property to an intending purchaser to buy the property at a specified price within a specified period of time (the validity period of the option).
^ Only the amount in your CPF Ordinary Account can be used.
# An S&P Agreement is a private contract between the buyer and seller for the sale and purchase of a property. Once the agreement is signed, neither party may withdraw from the Agreement.
+ A deposit held by the vendor's lawyer to assure the purchaser that the deposit will be kept safely until completion of the purchase.
Make an offer to the seller
By exercising the Option to Purchase (OTP), you enter into a Sale and Purchase (S&P) Agreement. The S&P Agreement is a valid and enforceable sale contract that is drafted by your lawyer.
How does a buyer exercise the OTP?
An OTP can be exercised in two ways:
• By signing the "Acceptance Copy" of the option (to indicate acceptance of the offer) within a given time frame and putting up another 4% or 9% of the sale price depending on the OTP.; or
• By entering into a S&P Agreement if the seller has earlier stipulated that in the OTP. Otherwise, its acceptance automatically renders it a sale contract.
Formal loan application to the Bank
For the bank to process your loan, you will need to submit these documents:
• Application Form:
o Mortgage Loan Application form
• CPF Documents:
o Transaction History up to the last 15 months
o Contribution History up to the last 15 months
o Yearly Statement of Account for the previous 5 years
• Income Documents:
o Latest Income Tax Notice of Assessment OR
o Latest computerised playslip OR
o Latest 2 years Income Tax Notice of Assessment (Only applicable to self-employed/commissioned based customers)
• Option to Purchase (OTP) or Sale and Purchase (S&P) Agreement
Upon approval of your application, the Bank will issue you a Letter of Offer (LO)*, stating details such as loan amount, loan tenure and the terms and conditions. It is in your best interests to understand its contents entirely before accepting it, as it becomes legally binding upon acceptance.
Once you have accepted the LO, the Bank will then instruct the law firm and valuation company to proceed with the necessary mortgage documentation and valuation report respectively.
A caveat^ will be lodged by your lawyer with the Singapore Land Authority against the property owner. Do note that diligence checks such as title and bankruptcy searches can commence before or after lodgement of the caveat.
* An LO is a formal housing loan contract offered by the bank with all the terms and conditions governing the housing loan offered therein.
^ A caveat serves as a notice that the bank has an interest in the property and will lapse 5 years from the date of lodgement, unless it is renewed.
Meet with your lawyer
You should expect to meet your lawyer at least twice in the process of purchasing your property.
First meeting
Your lawyer will help you exercise your Option to Purchase (OTP) / Sale and Purchase (S&P) Agreement and apply to the CPF Board for the use of your CPF Ordinary Account savings towards the purchase of the property, monthly instalments for the housing loan including legal fee and stamp duties.
Second meeting
Your lawyer will go through the mortgage documents in order to ensure that you fully understand all the terms and conditions stated therein.
Assist the Bank in obtaining valuation
• Upon instruction by the Bank, valuers are required to conduct a formal valuation of the property via physical inspection
• You need to inform the seller or the realtor to allow the valuers access to the property for inspection
• The valuers will then submit a copy of the valuation report to the Bank
• The Bank will then forward a copy of the valuation report to the lawyers as they will require it for CPF applications
Pay legal fees and collect your keys
Before the date of completion, your lawyer will prepare (i) completion statements and (ii) transfer documents after the following:
• Upon ensuring that the title is in order
• Upon satisfactory replies to legal requisitions to the various government departments
• Upon the discharge of encumbrances like mortgage and CPF charge
The legal fees are usually payable at this stage.
Completion Statements
The completion statement will show you the balance of the purchase price that you must pay after deducting any deposit, pro-rated property tax and utility charges, maintenance charges, and other applicable charges as well as any fees payable to the realtor and the lawyer.
It is usually sent to you a few days before the legal completion date together with instructions on the mode of payment.
Transfer Document
After you have settled the outstanding balance of the purchase price, the seller's lawyer will hand over the house keys and Transfer Document to your lawyer. Upon receipt of the Transfer Document, you assume the title of Owner.
Issuing of Certificate of Title (CT)
Your lawyer will apply for the CT to be issued by the Singapore Land Authority on the same day. He will safeguard the CT until it is handed over to the mortgagee (the financing bank) if the property is mortgaged.
Collection of Keys
Legal Completion usually takes place 8 to 12 weeks after the exercise. Collect the keys to your new home from your lawyer upon completion of your purchase, and upon receipt of TOP for uncompleted properties.
