There are a lot of things to consider when buying a new flat, but that’s not the main problem. The issue is that your decision isn’t really reversible – buy the wrong unit, and you’re listening to honking trucks at 3 am for the next 25 years (or worse, if you buy a resale unit with a loanshark problem). Here are the common mistakes to avoid:
1. Signing the Option to Purchase (OTP) before getting your loan approval
When you buy a flat, you’ll need to put down a deposit to secure the OTP. The Option fee is $1,000, and the deposit must not exceed $5,000. After securing the OTP, you have 21 days to exercise the Option (i.e. make the rest of the relevant payments and buy the house).
This means you should always have a guarantee of getting the loan you need, before putting down the deposit for the OTP. If you sign the OTP, and then can’t get a loan from HDB or the bank, then your deposit is wasted – it’s non-refundable.
Always make sure you get your HDB loan approval before the OTP. If you want to use a bank loan, you can secure In-Principle Approval from banks, before buying. In-Principle Approval obliges the bank to loan you a set amount, if you buy a house at the time when the Approval is valid (usually one week).
Note that, if you’re buying a resale flat, some property agents refuse to prepare the OTP until they see your loan approval (they want to avoid the drama that occurs from last minute-backing out, or pleading buyers).
2. Using a personal loan, credit card, or in-store credit to finance your renovations and furnishing
Banks offer renovation loans, which are always cheaper than options like personal loans and credit cards. Most renovations loans are under six per cent per annum, and there are sometimes even six month interest-free renovation loans (if you can complete payment within the six months, these are almost always a good deal).
By contrast, most personal loans are between six to nine per cent per annum, credit cards hit 26 per cent, and in-store credit (e.g. the hire-purchase schemes by furniture stores) can go as high as 36 per cent.
The maximum cap on a renovation loan is $30,000, or six months of your income, whichever is lower. So you can consider using, say, a personal loan after the costs have exceeded the renovation loan.
3. Buying a resale flat without checking for loanshark problems
We don’t just mean checking if your specific flat is targeted by loansharks (although that’s obviously something to be wary of). You also need to know if other units in the same block, or on the same floor, are having such issues.
Look for telltale signs like CCTVs installed by multiple units, or loanshark graffiti that’s still visible in stairwells or on the ground floor. It’s not unheard of for loansharks to harass multiple units in the same block, just to get at their debtors.
4. Assuming anything near major amenities is always good
In general, it’s good to be near amenities like hawker centres, or the neighbourhood mall. However, this isn’t universally true for everyone.
Consider that, if you’re near the mall or hawker centre, traffic congestion will be more common. If you drive, you might find that non-residents are hogging parking spaces, or clogging up the road. There’s also the issue of noise pollution to contend with, especially on the weekends.
Sometimes, it pays to be a little bit further away from the hub of all activity. Visit the area at around 7pm to 9pm, especially on weekends. This will give you a better sense of what conditions are like, at peak hours.
5. Simply buying the biggest HDB flat you can find
Despite what Singapore Kiasu-ism compels you to do, buying the biggest possible flat shouldn’t be your default option.
Remember that you’ll be paying the mortgage for a long time. A difference of $800 to $1,000 per month, in loan repayments, comes up to a huge sum over the decades. It could mean missing out on an end-of-year family vacation, for the next 15 years or more.
A common rule of thumb is that your house shouldn’t be more than five times your combined household income for a year. For most Singaporeans (the median income for Singaporeans is between $3,700 to $4,000 a month at the time of writing), the flat shouldn’t be priced above $480,000, assuming a dual income family. For a single income family, the flat shouldn’t be above $240,000*.
*After all relevant housing grants and costs.
Remember, if you’re not burdened with a crazy expensive loan now, you have a better chance to save up and upgrade later.
6. Roping in relatives (like your in-laws) to help as co-borrowers
This is a favourite tactic, of those who want to get a bigger flat than they could normally afford (see point 5 about that). The more borrowers there are, the smaller the initial down-payment, and the smaller the loan repayments.
But consider the potential legal complications. What happens if your in-law gets into financial trouble, and decides to stop paying her share of the loan? Or what happens if you decide to sell and upgrade later, but your relative refuses because they want to wait for a better price?
The resulting fights can sour relationships, and result in serious financial damage. Think twice before roping someone else in. An extra bedroom is seldom worth this sort of risk.
7. Not consulting the Urban Redevelopment Authority (URA) master plan
The URA has a master plan that details future developments. Always check to see if it’s in line with where you want to live.
If you like peace and quiet, for example, you might not want to be Paya Lebar, which is intended to become a business hub. On the other hand, that may be exactly what you want, if you’re hoping to use the flat for rental income many years from now.
Ensure that the planned developments sit well with you and your family; don’t just look at what’s immediately present.
8. Check if the community “works” for you
Every neighbourhood has its own culture and communal presence. Bedok is known for being rather laid back, whereas Yishun experiences a lot of (bizarre) excitement. As you’re going to be living there for a long time, make an effort to get a feel for the neighbourhood.
In particular, get a sense for how friendly the neighbours are, and visit the community centre. The list of activities will clue you in on how active the community is, and what subcultures you’ll be immersed in.
9. Buying like an investor when you’re really an HDB home buyer
Investors should care about resale value, rental prospects, market timing, and all the usual money issues. But if you’re a home buyer, you need to consider a whole different set of requirements.
Rental income and resale gain should be the least of your concerns, as a home buyer. You need to make sure the flat suits your family’s lifestyle, and that you’re perfectly comfortable coming home to it. Sometimes, an amenity for a landlord – such as a nearby MRT station – is a disamenity to you. Sure, the train station could raise your resale value; but maybe you already drive, and have no desire to hear the train roar past every few minutes.
Likewise, it’s sometimes okay to pay a little more, if the HDB unit is perfect for you. Remember, your family has to sleep there, eat there, and grow up within those four walls. That should override the importance of making a bit more cash if you resell.