For home buyers, the main priority to choosing your dream home is budget. After all, if you have a budget of $500,000, that's how much your dream home can cost, right? Well, not quite. And here’s why: Whether you are getting an HDB BTO, new launch condo or resale HDB/condo, there are always going to be hidden costs that aren't part of the purchase price.
Here are some the additional costs of home ownership which you need to consider, together with some handy tips on how you can dodge some of them.
In an ideal world, you and the seller both have the same love for Scandinavian minimalism, and you are ready to move in without any renovation. But in reality, you'll probably need to spend both time and money to renovate your home into a cosy place that is customised to your taste.
Renovation is definitely one of those hidden costs that you need pay attention to. This is especially for new homebuyers who are getting their first home and have never done any renovation before in your lifetime. It may cost more than you suspect!
How much you will be spending on renovation will be determined by a few factors:
Type Of Home
For new BTOs, you will need to spend on the ground works such as flooring, painting and building of built-in furniture. For various reasons, you may not opt for HDB's Optional Component Scheme and want to go with your own aesthetic.
For resale HDB/condo, there’s no need to spend on the ground works again unless you want a major overhaul. However, for resale HDB/condo, you might have to pay for demolition cost if you want to remove some of the built-in features from the previous owner. You then have to factor in the cost of getting your own replacements.
Size Of Home
The amount of renovation you need to spend is proportionate to the size of your home. The bigger your home, the more you have to fork out for renovation. As a general rule of thumb, expect every room in your home to cost you around $10,000.
For instance, a 3-room HDB flat will cost you around $30,000. If the home you are buying has some built-in furniture (e.g. new launch condo, or resale HDB/condo) that you are planning on keeping, you might be able to cut $5,000 to $10,000 from the budget, depending on how much less work needs to be done.
Type Of Renovation/ID Style
Interior design (ID) style is also another major influence on how much you will eventually spend on your renovation. Some ID styles like industrial and modern are much more expensive compared to minimalist or Scandinavian style because of the type of furniture and workmanship required.
Mortgage Master Tip: We mentioned it earlier, and we weren't joking! One way to avoid/minimize the renovation cost is to consider buying a home that has similar ID style to what you ideally want for your home. This will help reduce the renovation required.
Alternatively, you can opt for a barebones home that won’t cost you much to demolish the existing ID. Plus, given the barebones ID, you can probably bargain for a lower price as well.
2. Conveyancing, Valuation Fees
Conveyancing is the legal process of getting the title deed transferred from the seller to your name. To do so, you will need to engage a conveyancing lawyer.
For HDB flats (BTO, resale), you have the option to engage HDB's solicitor to act for you, which will cost you around $2,000. For condo, you will need to engage your own conveyancing lawyer. The conveyancing cost for condo will be slightly higher, i.e. between $2,300 and $3,200 on average.
If you haven't gotten a loan for your property yet, why not contact Mortgage Master? We can recommend the best conveyancing law firms in Singapore and even extend a preferential rate to our clients.
The other fee that you will need to factor in is the valuation fee. Unless you are buying a BTO or taking an HDB loan, those who are taking a bank loan will need to pay a valuation fee. The valuation fee is paid to a professional appraiser to produce a valuation report for your property. The bank then uses this to decide on the loan quantum of your home loan.
The average cost of a valuation report is between $350 to $500, depending on the type of property that you are buying.
Mortgage Master Tip: A great way to save on these hidden cost is to take advantage of banks’ home loan package promos. Some banks will absorb the valuation fee as part of the promo so you can save on the valuation fees.
Not sure where to find such good lobang? Ask Mortgage Master! We know where all the best deals for home loans are and can help you calculate whether a home loan package is suitable for you.
3. Stamp Duty
On top of conveyancing and valuation fees, the other hidden cost to be paid to a 3rd party is the stamp duty. When it comes to buying a property, the Buyer Stamp Duty (BSD) is a given. Here’s a breakdown of the BSD rate from IRAS.
|Buyer Stamp Duty (BSD)|
|Purchase Price or Market Value of the Property||BSD Rate|
Thus, if you buy a property that is worth $1 million, you will need to pay $10,800 in BSD to IRAS.
$180,000 x 1% = $1,800
$180,000 x 2% = $3,600
$640,000 x 3% = $5,400
For those who own multiple properties, you will also be subjected to Additional Buyer Stamp Duty (ABSD), which was announced by the government back in 2011 as part of the property cooling measures. After 3 rounds of adjustments to ABSD, this is the latest ABSD rates that homebuyers have to pay.
|Additional Buyer Stamp Duty (ABSD)|
|Profile of Buyer||ABSD Rate since 6 Jul 2018|
|Singapore Citizens (SC)|
|SC buying 1st residential property||Not applicable|
|SC buying 2nd residential property||12%|
|SC buying 3rd and subsequent residential property||15%|
|Singapore Permanent Resident (SPR)|
|SPR buying 1st residential property||5%|
|SPR buying 2nd and subsequent residential property||15%|
|Foreigners buying any residential property||20%|
Mortgage Master Tip: There’s no way you can avoid the BSD. For the ABSD, one of the legal ways to avoid it is decoupling. For the uninitiated, decoupling means you remove your spouse name from your existing property and put his/her name on the other property. In that way, there’s no ABSD since both of you own 1 property each under your name. We'll share more about this in a future article, but feel free to contact us for advice!
4. Interest Payment On Home Loan
Compound interest is called the eighth wonder of the world, and Warren Buffett swears by it. And there’s a good reason for that. Assuming you're on the right side of the equation, of course!
When it comes to home loans, it's another story. Did you know that if you borrowed $1 million for 25 years at an interest rate of 2.6%, you will eventually need to repay $1.361 million?
The additional $361,000 goes to interest payment that is charged by HDB (if you're on an HDB loan) or the bank (if you're on a bank loan). Imagine how much you could have saved if you could reduce the interest rate that is charged on your home loan regularly? If only there was a legitimate way for you to do so.
Mortgage Master Tip: Well, the matter of fact is that there is a way that you can be smart about this! In our current low interest rate environment, banks are offering home loans that are as low as 1.08%. Assuming you pay an interest rate of 1.08% for 25 years, the total amount that you will pay on your home loan will be $1.142 million, instead of $1.361 million. That’s an effortless saving of more than $220,000.
Throughout your loan tenure, keep a look out for opportunities to refinance your home loan, ensuring that you're always enjoying the best rates in the market.
If you are looking for ways to reduce the hidden cost of interest charges on your home loan, let Mortgage Master help you get the best rates on your home loan.
5. Losing Out On CPF OA’s 2.5% Interest
Unlike the other hidden costs, this isn’t exactly one that you need to fork out from your pocket. Rather, it is an opportunity cost.
Property purchases are one of the few ways you can utilise your CPF Ordinary Account (OA). However, there will always be the question of how much to use. That’s because if you had kept your money in the CPF OA instead of using it on your home, you would have been earning at a 2.5% interest rate every year, at least.
And yes, it will be compounded.
Not just that, if you were to sell your home many years later, you will likely need to return part of your sales proceeds to your CPF OA, including the accrued interest that you would've earned had you not used your CPF.
Mortgage Master Tip: There’s actually a very legitimate way to avoid being subjected to this hidden cost. You can now choose to keep up to $20,000 in your CPF OA, rather than drain it entirely when buying an HDB using an HDB loan. For condo buyers and HDB homebuyers taking a bank loan, the option is even more flexible!
You have the option of using any amount in your CPF OA and paying the rest in cash. The less you use from CPF OA, the more you can earn from CPF OA’s 2.5% interest rate. And we're not even talking about the higher interest you can earn via the Special Account or through the CPF Investment Scheme.
6. Agent Commission
Last but not least, there’s the agent commission cost that homebuyers should keep in mind. The general market practice is to pay property agents between 1% to 3% of the transacted price. This needs to be paid in cash and you can’t use your CPF OA for it.
Mortgage Master Tip: While it is common practice to engage a property agent, it is not easy to find a good one who is truly worth the commission you pay. If you already know someone you trust to have your best interests at heart, cherish that! However, if you don't, Mortgage Master works with trusted partners who share our philosophy and values to do what is right.
If you're looking to purchase a new property, or refinance your existing home loan, fill up our enquiry form and our mortgage consultants will follow up with a call.
Image credit: Afifi Zulkifle, Unsplash