What do I look out for when buying property?
May 13, 2007
What do I look out for when buying property?
Q PLEASE advise on a checklist of important details to look out for when buying property.
A The purchase of property involves a substantial amount of money and can involve long-term financial commitment.
Thus, the most important thing is to ensure you can comfortably afford the property you're purchasing.
Basic checklist
Affordability
A general guide is to ensure your total monthly housing loan instalment does not exceed 35 per cent of your monthly income. This will help ensure that you have sufficient cash for fulfilling other objectives such as retirement.
To be prudent, it is also a good idea to set aside cash and/or sufficient CPF monies to pay for at least six months' monthly instalments.
Location is also an important consideration. A well-maintained property in a good location would be better able to sustain its valuation.
Personal inspection
You should personally inspect the property before buying it. Keep an eye on the physical structure to estimate any cost of renovation and repairs that might be necessary.
The physical environment is also an important consideration. For instance, a large vacant plot of land next to the subject property may eventually be built up, blocking your view and affecting the value of the property.
Remaining lease
For any property with a remaining lease of less than 60 years, the maximum CPF withdrawal limit can range from 0 to 100 per cent, much lower than the usual 126 per cent.
Prior bank loan approval
You might risk forfeiting your option money in the event that the bank is unable to meet your financing requirements.
For instance, if the purchase price of your property might be higher than the bank's valuation, any excess would have to be paid in cash. You might also need a higher loan amount than what the bank is willing to approve based on your income.
Mortgage shopping
When shopping for the right home loan, keep these in mind:
Loan duration
Check the maximum loan term that you can get. The normal loan term is 30 to 35 years, or up to when you are 65 or 70 years old, whichever is lower.
However, if you plan to retire by age 60, you should not take out a housing loan that stretches to when you are say, 65 years old.
Payment projections
Compare the monthly repayment (based on different interest rate scenarios) from various banks to see if you are comfortable with the amount.
Interest rate comparison
Check to see if the bank offers fixed rate loans and how long the fixed rate period will be. Note that banks typically charge higher interest rates if you want fixed interest rates.
Thus, if interest rates are not going up, you might actually be better off choosing a floating rate housing loan instead.
Extras
Check if the bank gives free fire insurance and other freebies.
Free loan conversion
If you are buying properties that are still under construction, you might want to check if the bank offers a one-time free loan conversion when the property reaches temporary occupation permit status as you want the flexibility to switch to a better package rather than be stuck with your existing package, which might be a worse option.
Penalties
Ask to see what fees will be charged if you do a partial or full redemption of your loan. Also check how long the penalty period is. Currently, there are some housing loan packages with zero penalty period, while typically most loans have one to three years of penalty period.
Other costs
These include legal fees. Banks typically provide a legal subsidy pegged to 0.4 per cent of the loan amount. Thus, if your loan is big enough, the bank might help you pay for the legal fees fully without you having to pay at all.
Promotional packages
From time to time, banks might come up with special promotional packages. If you engage the services of a mortgage broker, he would be able to provide you updated information on such special promotions.
Dennis Ng
Spokesman for mortgage
consultancy portal
www.HousingLoanSG.com
Advice provided in this column is not meant as a substitute for comprehensive professional advice. E-mail questions to [email protected]
