What you should do when purchasing a developer unit? It is important to understand your finances as you plan to purchase a new house. Most likely, you will need a bank loan to finance the purchase. This means that you should know the mistakes to avoid when obtaining a loan for the property.
Know the amount you should borrow and that you can afford
As simple as it sounds, many people make mistakes on this a lot and fall into this property trap. So, what amount should you borrow and how much can you afford?
- Cash. You need at least 5% of the unit price.
- CPF. You can make a down payment with the money in Ordinary Account.
CPF and Cash must be no less than 20% of the price of the unit since the maximum amount of loan you can get is 80% of the price.
Having the down payment solves part of the problem. You need to consider the loan requirements. As it stands, according to the Total Debt Servicing Ratio, you cannot spend above 60% of your income to pay back loans.
For instance, if your monthly earnings is $5,000, the maximum amount you can use to pay loans is $3,000.
Getting a bank loan
This is one property pitfall that can affect your purchase and therefore it is recommended that you seek the services of a banker before you start your search for a house. There is stiff competition on home loans and so do your research and compare different providers.
Visit banks and check out the different loan packages they have. You can also compare offers from mortgage brokers online.
Go to a mortgage banker, have your financial run, fill forms, and present income documents so that you obtain an In-Principle Approval. This shows the amount of loan that the bank can give you for your house purchase.
With this, you can be calm when you are searching for a house since you know that the bank has approved the loan.
Before you pay a booking fee, make sure your financials are sorted since if your application of the loan is rejected, you will not be refunded your booking fee.
Some expenses may seem small in comparison to the price of the property but are substantial in isolation. You should consider them to avoid some financial pitfalls.
- Stamp duty. Payable to the IRAS, it costs $24,600 for a property of $1m.
- Lawyer’s fee. It starts at $2,500 for the units. Half the amount goes to disbursements, which means the money is being spent on procedures that need to be fulfilled when purchasing the property.
The lawyer handles the entire legal procedures and your money, writes to CPF for you to use the funds, and liaises with the house seller.
You can pay lawyer’s fees and stamp duty with your CPF funds.