Should you buy a larger resale HDB or upgrade to an EC?
Upgrading to an EC after staying past MOP in a HDB seems to be the natural progression, or, perhaps a rite of passage. After all, this is the “Singaporean Dream” and as previously mentioned in our blog – it’s a privilege for Singaporeans as it’s akin to buying a Lexus at a price of a Corolla.
Perhaps, you might be one of those “fortunate” few couples that earn 5-figures per month, but still earn below the household income ceiling stipulated for EC ($16,000 per month). It might seem to be a comfortable income – after all, this puts you as the middle class bracket. But let’s not forget the rising inflationary prices of energy costs and consumer goods, as exacerbated by the seemingly protracted Russia-Ukraine crisis.
So admittedly, this can be a dilemma for this “sandwiched” niched group of Singaporeans. Hence, it’s time to address the financial perspective and affordability of buying an EC, after talking about eligibility conditions in the last blog post.
Key Financial Considerations
How much loan can you obtain taking into account TDSR and MSR?
CPF Housing Grant
Payment Schemes
1. How much loan can you obtain taking into account TDSR and MSR?
First off, to secure a loan, you do need to show your proof of income. Generally speaking, unless you are a full-time employed with fixed monthly income, you generally need 6 months pay slips preceding the month of application. Certification letter from employer to verify gross income needs to include Company Stamp/Letterhead with certifying officer’s name, signature and designation.
Upon applying for a loan, what about the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) that we need to take into account?
A borrower’s TDSR should be less than or equal to 55%; and the MSR is capped at 30% of a borrower’s gross monthly income.
For example,
Fixed Monthly Income = $8,000
Total Debt = $2,300
Car Loan = $1200
School Loan = $600
Renovation Loan = $500
TDSR = $2,300/$8,000 x 100% = 28% (clearly, this will pass the TDSR criteria!)
55% (max. cap for TDSR) – 28% (TDSR) = 27% MSR (and this will also pass the MSR criteria too!)
MSR (Amount set aside for monthly mortgage to service the EC) = $2160/month
Total Loan Amount (based on 30 years of loan tenure) = $653,000
In the grand scheme of things, there are 3 components that you need to take note of, as follows:
5% Cash
20% Utilising CPF (Including Grants)
75% Loan
Other fees to consider are stamp duty and legal fees, which are payable by cash or using CPF.
2. CPF Housing Grant
The different tiers of CPF Housing Grant is dependent on the type of household mix (i.e. SC/SC, or SC/SPR) and the monthly household income. If you are a SC or SPR household, you’re eligible to apply for the citizen top-up grant if one of the following conditions is met:
Birth of a SC Child
ORThe SPR spouse, parent, or child listed in the application has converted to become a SC
3. Payment Schemes
This is where it makes or breaks the decision for most EC homebuyers; when do I have to make payment AND how much? There are 2 different payment schemes available – Progressive Payment Scheme and Deferred Payment Scheme.
The Progressive Payment Scheme typically applies for ECs that are newly launched (i.e. in the process of being built) . The payments are done by instalments, typically 5%-10%, with each payment being made when a specific milestone is reached.
During the initial stages, payments are spaced far apart. Payments become more consistent in the subsequent stages when various components are completed. For example, you would make an installment payment to the developer when the foundation is built; another one when the walls are up; and another one more when the roof is finished, etc.
To give you a better idea of how the Progressive Payment Scheme works, let’s break down the timeline as follows:
Loan Information
Price of EC Property = $1 million
Loan Amount = $750,000 (based on 30 years loan tenure)
Initial Payments
Option To Purchase (5%) Using Cash = $50,000
Sale & Purchase (15%) Using Cash/CPF = $150,000
Buyer Stamp Duty Using Cash/CPF = $24,600
Total Initial Payment = $224,600
Payment Upon Completion Of:
Foundation Works (10%) and Loan Tenure Begins = $50,000 Using Cash/CPF (5%) + $165/month for 6 months (5%)
Concrete Framework of Unit (10%) After 1 Year = $501/month for 6 months
Brick Walls (5%) After 1 Year and 6 Months = $671/month for 3 months
Ceiling Roofing (5%) After 1 Year and 9 Months = $843/month for 3 months
Door Window (5%) After 2 Years = $1015/month for 3 months
Car Park/Roads/Drains (5%) After 2 Years and 3 Months = $1189/month for 3 months
TOP (25%) After 2 Years and 6 Months = $2066/month for 1 Year
Certificate of Completion (15%) = $2608/month thereafter
For the Deferred Payment Scheme, this allows EC homebuyers to put down 20% down payment. The remaining 65% is deferred until receiving a Notice of Temporary Occupation Permit (TOP); essentially, when you’re ready to move into your new EC home.
If EC homebuyers opt for Deferred Payment Scheme, they don’t have to go through the hassle of juggling 2 mortgage loans at the same time. That’s the beauty of this payment scheme! No loan repayment is required during the construction stages, and it offers those with existing loan repayment some flexibility in managing their finances.
However, the purchase price for buying a newly launched EC on the Deferred Payment Scheme is usually 3% higher than the normal purchase price of the EC.
Here’s how the Deferred Payment Scheme works:
Loan Information
Price of EC Property = $1 million
Loan Amount = $750,000 (based on 30 years loan tenure)
Initial Payments
Option To Purchase (5%) Using Cash = $50,000
Sale & Purchase (15%) Using Cash/CPF = $150,000
Buyer Stamp Duty Using Cash/CPF = $24,600
Total Initial Payment = $224,600
Payments Upon:
Obtaining TOP (60%) = $600,000 Disbursement Amount with Monthly Payment of $1985.45
Production of Certificate of Statutory Completion (15%) = $750,000 Disbursement Amount with Monthly Payment of $2481.442
Note: The timeframe from obtaining TOP to Certificate of Statutory Completion is approximately 1 to 3 years.
Based on the above, crunch the numbers to work out if the progressive payment scheme or deferred payment scheme works better for your financial comfort level.
Ultimately, if upgrading to a semi-privatized or a private property is your ‘Singaporean Dream”, you can also see clearly how important it is to weigh out your options – stretching yourself too thin financially and you could be setback for the foreseeable future.
If you’re still unsure of the next step, contact us at Live A Home SG. You can follow us for the latest property news and updates, as well as property reviews in Singapore’s real estate scene.
