Here’s how we decided on what home to buy.
As some of you guys may know, I finally moved in to my home this year. I’ve shared previously on my renovation aspects but have yet to share how Skai and I decided on the choice of our home.
Type of housing?
At the point where both of us decided to take the next step, Skai and I discussed the type of housing that we were looking for e.g. HDB, Condo, Landed etc.
As both of us were two broke fools, we talked about feasibility. At that time, I had just graduated from university and started on my first job. Skai had only worked for a couple of years. Based on our combined income, we could not afford any huge downpayments as we did not have any savings then.
We decided that a HDB was a good fit for both of us. We looked at our CPF contributions and toyed with the idea of a 4-room or 5-room, and finally decided on a 4-room. Reason being, if we had bought a 5-room flat, the monthly instalments would be more than our monthly CPF contributions. That meant that we would have to top up cash, which I wasn’t comfortable with. I would rather buy within our means.
$ & Location?
The prices of a 4-room flat in a mature estate differs drastically from a 4-room flat in a non-mature estate. While we were looking for a HDB flat, we also had to consider between a resale or a Build-To-Order (BTO) flat. As mentioned, we did not have any savings at that point in time and the property market was a seller’s market then. Thus we’ve decided on a BTO instead of a resale.
Another thing to consider was location - we would have loved to stay near our parents but there were hardly any BTO projects at Bedok or Toa Payoh back then.
While we were looking through the BTO launches, we noticed a stark difference in prices due to location. A 4-room flat in a mature estate such as Clementi would cost way more than a 4-room flat in non-mature estates such as Punggol. In fact, the 4-room flat in Clementi could cost more than an average 5-room flat!
Again, as our main concern was affordability, we decided to opt for a BTO in a non-mature estate. Skai was also excited about the development prospects in Punggol back then.
Thus, we leaned towards BTOs in Sengkang and Punggol. Not too bad a decision in the long run and it really paid off. Waterway Point, one of the largest shopping centres in North-East, and Punggol Safra was built near our BTO. While Punggol is considered an ‘ulu’ location to many, I love how scenic and quiet the place is.
Also, as a bonus, I get to wake up to this view every day.
So we applied and got our flat 4 years later.
Deliberations over loans.
4 years went by and our keys were ready for collection. During that time, Skai and I had accumulated a considerable amount in our OA (Ordinary Account) as both of us worked right after graduation. With our loan amount reduced, our monthly instalments would be lesser too.
Take for example, a couple earns a combined income of $4,000 and assuming that they do not enjoy any increments over the 4 years.
Their monthly CPF contribution would be $1,480 (inclusive of employer’s contribution of 17%). 23% out of the 37% goes to the OA account, which means that they would have accumulated at least $40,000 in their OA account! Reducing the loan by $40,000 would mean that you could opt for a shorter loan or lessen the monthly instalments.
Another thing that Skai and I agreed on was to opt for a shorter loan tenure. Most people do not realise how scary compound interest is. For example, if we had opted for a $300,000 loan over 25 years, the total amount that we would have paid inclusive of our interest would be: $408,300. That means the interest alone would be $108,300!
On the other hand, if we had opted for the same loan over 15 years, the total amount that we would have paid would be: $362,700. That’s a difference of $45,600! Madness. Also, that would mean losing out on at least 2.5% interest that we could gain if we left our savings in our CPF accounts! Needless to say, Skai and I opted for a shorter loan tenure.
Another factor that we considered was that we wanted to pay off our housing loan before we hit the age of 55 when the contribution rate would have decreased. We also aim to further shorten our loan by making partial capital repayment as much as we could afford.
Moreover, we managed to free up our cash for other expenditures since we need not fork out cash for our monthly instalments. Thankfully we did, as a very big unexpected expenditure popped up this year: giving birth and raising a child.
Spending within our means.
In order to pay for our home without breaking the bank, we decided to scrimp on certain aspects and splurge on others.
We did not overspend for our renovation. While some may have gone for the works with a budget of $80,000 (yes, we’ve heard of such cases. This is just on renovation, excluding furnishings or electricals!), we decided to spend more on affordable furnishings that we purchased overseas.
Instead of opting for designer furniture, we played with furnishings such as colourful cushions, a “hipster” carpet and some affordable balcony furniture to create a cosy and homely feel. Definitely getting more bang for our buck!
Also, there are many other costs involved ASIDE from the monthly housing instalments. There’s insurance, utilities, taxes, conservancy charges. These necessary expenses were definitely more important than overspending on frivolous items.
I think we managed to own a cosy and comfortable home according to our needs. Thankfully we were financially prudent thus for unforeseen expenses (like giving birth this year) didn’t set us back.
Here’s my personal take on how we could afford our home.
While this is a sponsored article by CPF Board, opinions are my own.