Your Questions On Using CPF For A Home Purchase, Answered!
Because it brings heavy financial commitment, property buying is a big thing for many folks. Most Singaporeans, especially first-time home buyers, often choose to use their CPF (Central Provident Fund) savings to offset the down payment as well as monthly financial obligations.
Are you considering this option as well? Here's a short list of Frequently Asked Questions (FAQs) to clear your doubts:
First of all, what exactly is CPF? What are the types of CPF Accounts and returns on CPF?
Interior Designer: U & Me
First introduced in 1955, CPF is a compulsory social security savings scheme for employed Singaporeans and Permanent Residents (PRs). A mandated percentage of base salary (20%), along with an extra 17% from employers, goes into an individual’s CPF accounts every month.
Perhaps the most familiar benefit of is that CPF is in its use to meet healthcare and housing needs, lightening the burden of these substantial costs. Besides ensuring that one retires with ample savings, family protection and asset enhancement opportunities have also been rolled out under the Dependents’ Protection Scheme and CPF Investment Scheme respectively.
Interior Designer: KDOT Associates
The monthly contributions by you and your employer go into three types of CPF Accounts until age 55, when a special account for Retirement funds will be created:
(i) Ordinary Account (OA): funds within can be used to buy property, pay for CPF insurance, investments, and education;
(ii) Special Account (SA): primarily for old age and investment for retirement; and
(iii) Medisave Account (M): funds within can be used to pay hospitalization expenses and approved medical insurance.
CPF savings earn a minimum guaranteed return of 2.5% p.a. pegged to a long-term bond rate, while Special and Medisave accounts yield at least 4%. Furthermore, an additional 1% is paid on the first $60,000 of a member’s combined CPF balance. For those aged 55 and above, an additional 1% on the first $30,000 will be given.
Can I use CPF savings to purchase a property?
Interior Designer: Lemonfridge Studio
Yes. With the assistance of CPF, over 90% of Singaporeans and PRs are homeowners.
Through the CPF Home Ownership Scheme, the savings in your Ordinary Account can be used to buy a property. This applies to both the purchase of public and private property. Your CPF savings can be used for full or partial payment, and also for monthly housing payments.
To go into greater detail, the accumulated monies in your Ordinary Account can be withdrawn as a lump sum payment at the time of purchase. However, this is only possible after you have paid the (a) Cash Over Valuation (COV); OR (b) cash down payment of at least 5% for Loan-To-Value (LTV) of 80%, or 10% for LTV of 60% of the Valuation Limit (VL).
Moving forward, your monthly CPF contribution to the Ordinary Account can be used to repay the monthly mortgage servicing. If the amount in your Ordinary Account is insufficient then unfortunately, CPF cannot be used to finance your property purchase.
What is the Valuation Limit (VL) and Cash Over Valuation (COV)?
Interior Designer: Starry Homestead
Valuation Limit (VL) is the property’s price or value, whichever is lower, at the time of purchase.
Purchase price = $750,000
Valuation = $700,000
Valuation Limit = $700,000
Cash Over Valuation (COV) is the positive difference between the property price and property value.
Purchase price = $650,000
Valuation = $600,000
Cash Over Valuation = $50,000
How much of my CPF can I use?
Interior Designer: Posh Home
CPF amounts of up to 100% of the VL can be used for both lump sum and monthly mortgage payments. It is very important to note that, when the total amount of CPF withdrawn hits the VL, half of the prevailing Minimum Sum ($161,000 as of 2017) in the CPF account must be set aside if we wish to withdraw more CPF funds up to the Withdrawal Limit (WL) — which currently stands at 120% of the VL.
What happens when I sell the property?
Interior Designer: Space Concepts Design
Before you can sell off the property, you have to first obtain the consent of the CPF Board. In addition to the CPF savings that you have withdrawn e.g. the total of lump sum and monthly usage. The accrued interest to your CPF account must also be returned.
Are we allowed to use CPF savings jointly to purchase a private property?
Interior Designer: Artmuse Interior
Yes. Two groups of members can jointly use CPF to buy a private property.
Group 1: Members of an immediate family e.g. spouses, parents, children and siblings
Group 2: Unrelated singles (unmarried, divorced or widowed), provided that they currently do not use their CPF for any existing properties.
The total CPF amount that can be withdrawn e.g. the lump sum and monthly instalments by all the joint owners should not exceed the Withdrawal Limit (WL) allowed.
Can I use CPF savings to pay for the following home purchase related expenses?
Interior Designer: Asolidplan
(a) Legal fee, stamp duty and the Additional Buyer Stamp Duty (ABSD) (if applicable)
Yes, provided that you are also using your CPF to purchase the property.
(b) Land and construction costs (for those intending to build your own property)
Yes. However, you can only withdraw your CPF savings after the issuance of Temporary Occupation Permit for the house. As such, you need to obtain a loan to finance the construction first, before you can proceed to apply for withdrawal of your CPF savings to repay this loan.
(c) Renovation, improvements and repairs to a private property
No, because these are consumptive in nature.
Now that we’ve looked at how CPF savings can be utilized for home purchase, would you like to learn more about CPF housing grants and thus save even more? If so, check out our article – The Home Owner’s Guide To Leveraging on CPF Housing Grants – to find out more!
To the best of our knowledge, the information contained herein is accurate and reliable at the time of publication.
The article was first published in Redbrick Mortgage advisory which provides advice to homeowners on loans selection. Read more about choosing the best home loan in Singapore to save on your mortgage every month!