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So, You Want an HDB Flat in 5 Years? Start with These Steps

May 26, 2021

Getting a home in Singapore is a big financial goal, which is why planning early helps!

When it comes to budgeting and saving, the hardest part is usually getting started. It’s all too tempting (and easy) to spend your entire paycheque every month without a care… but not unless you’ve got a firm financial goal in mind.

financial budgeting to buy hdb in 5 years
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Source: CPF Board

For 32% of young Singapore millennials, this entails having enough savings for major purchases, including a new home that they can call their own. If you’re among these aspiring homeowners, this CPF Board-recommended financial guide will aid you in planning your way to an HDB flat in the next five years:

Years 1 to 2: Do the groundwork and plan your housing budget

Location matters but so does money. The top-most item on your to-do list for the first two years should be to figure out a suitable (read: affordable) property price – and that’s something you can do with CPF’s Our First Home Calculator.

Based on your income and ability to service a loan, the calculator will provide an estimated property price that’s within your means.

financial budgeting to buy hdb in 5 years
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Source: CPF Board

Next, you might want to keep an eye on CPF housing grants that you’re eligible for. For instance, first-time BTO flat applicants can qualify for the Enhanced CPF Housing Grant (EHG) of up to $80,000.

Assuming that you and your partner have a combined income of $5,000, it’s possible for the both of you to receive a total of $45,000 in EHG grants. In addition to offsetting the purchase price of your new flat, this sum will also come in handy in reducing the mortgage loan for your flat.

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Not to forget, your personal savings are a key part of this 5-year plan as well – in addition to building up the savings in your CPF Ordinary Accounts, both you and your partner may wish to open up a joint savings account where you can each deposit 20% of your salaries every month to build up a nest egg.

Years 3 to 4: Choose your housing loan and think about how you’ll pay it off

Upon entering the third and fourth years of your home-buying journey, you’ll want to think about either taking out a housing loan with HDB or with a financial institution.

One of the key differences between the two lies in the downpayment amount that you’ll have to pay:

HDB Housing LoanLoan from Financial Institution
Downpayment Amount10% of your flat's purchase price25% of your flat's purchase price
financial budgeting to buy hdb in 5 years
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Source: CPF Board

Additionally, unlike an HDB housing loan, if you choose to take up a housing loan from a financial institution, you’ll be unable to pay for the downpayment in full using your CPF savings. Instead, you’ll have to pay 5% of the downpayment with cash, with the remaining 20% payable via CPF savings or cash.

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Yet another two other key aspects that you’ll want to give some thought to are your ability to repay your loans as well as whether you’ll be repaying them with cash or your CPF savings.

In the case of the former, first start off by calculating your Mortgage Servicing Ratio (MSR) and your Total Debt Servicing Ratio (TDSR).

  • MSR refers to the percentage of your gross monthly income that goes towards paying your property loans (ideally 30% or below); whereas
  • TDSR is how much of it goes to your monthly debt obligations (kept at 60% or below, if possible).
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As for deciding between using your cash or CPF savings to repay a housing loan, it’s ultimately a matter of personal preference.

  • If you prefer to have more liquidity in your accounts, you can choose to tap on your CPF savings.
  • If you wish to get started on your retirement planning early, paying your housing loan with cash might be a better option.
  • If you can’t decide, you can also consider opting for part-cash, part-CPF as that could also help you to grow your CPF savings in your OA.

By accumulating your CPF savings, you’ll allow them to continue growing at a rate of up to 3.5% per annum – and that includes the extra interest, which is paid by the Government, on the first $60,000 of your combined balances (T&Cs apply).

Year 5: Move in and furnish your new home (within budget)!

It’s here! You’re now in the final year of your journey towards home ownership – and it’s time to collect the keys to your BTO flat.

financial budgeting to buy hdb in 5 years
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Source: CPF Board

But that doesn’t mean your financial planning stops here. For your home makeover, it’s important to draw up a budget that accounts for all of the renovation costs and furniture purchases.

Allocating a budget to each component will ensure that you’ll spend within your means – and perhaps, even help you get started on your next big life goal: starting a family!

Get financially ready for your future!

This article was adapted in collaboration with CPF Board and ‘Are You Ready’, an initiative that aims to help Singaporeans understand the different aspects of their CPF savings and personal finances as they go through the key stages of life.

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