Surveys have shown that eight in ten Singaporean youths aspire to own homes in their lifetimes, with 6 in 10 of them dreaming of owning homes that are larger and more comfortable than those of their parents. Despite this, the challenge of home ownership persists, especially for younger buyers looking to own their first home. High costs are a major factor in pushing home ownership beyond the reach of many. Here we are only going to talk about new private housing purchases and not HDB.
If you’re looking to own a private property but worry if you can afford the monthly instalment, new launches can be an option. New launches can also be better known as Building-Under-Construction (BUC) homes. These properties tend to have a progressive payment approach as compared to resale units as you pay progressively as the project is being developed. That being said, new launches tend to be more expensive than resale units simply because they are new with its full lease.
BUC homes are basically privately constructed residential units that have not yet been built, or are still in the process of construction.
These incomplete projects are paid via a progressive payment scheme, whereby certain percentages of the home value are released or paid to the developer upon completion of a project milestone. In the initial stages of your purchase of a BUC, you will have to pay a 25% down payment and draw down the loan from your bank as each stage of the project develops.
Among the advantages of choosing to purchase a BUC home is that they are, in general, more affordable than completed or resale units in monthly instalment. Furthermore, the progressive payment scheme allows you to manage your finances better, as payments will be released to the developer over a period of several years.
Before we examine how a loan for a BUC differs for loan applicants, let us first examine what similarities they share with loans for completed and resale properties. To begin, you would need the same personal details and documentation. Qualifying for a loan would also depend on the same factors, such as your credit scores, total debt servicing ratio (TDSR) as well as loan to value ratio (LTV).
In general, lenders would need you to have a good credit score and a TDSR rate below 55%. They would also require that the maximum LTV be at 75% of the property value.
A BUC home loan for new launch purchase has several key differences with loans for resale or completed units. Home loans for BUC purchases are released in a progressive manner, according to specific development and project milestones.
This means that the entire loan quantum will only be fully drawn within a period of 4-5 years depending on the speed of completion for the property you purchased. This is in stark contrast to conventional home loans where the full loan amount is disbursed immediately to the developer or previous home owner.
Another significant difference here is that your initial repayments to the banks or lenders would be significantly lower and build up towards the later part of your repayment tenor, since the initial amounts released to developers are lower than a conventional loan.
There are several stages of the purchase process that you will have to experience when buying a BUC unit. In general, they fall into two main phases. The following table will help you understand the stages of payment more clearly. We will then look more closely at these stages and the phases that they fall into:
Upon expressing interest in a BUC unit, the developer will furnish you with a document known as the Option to Purchase (OTP). Upon signing this document you will be required to pay 5% of the property purchase price as a booking fee upfront.
OTP documents expire within 3 weeks, so within that time the developer will have to provide you with a Sales and Purchase Agreement (SPA), which is a legal document acknowledging your purchase of the property. Upon signing the SPA, you will need to pay an additional 15% of the purchase price.
All payments during this stage should come from your savings. However, you are allowed to withdraw from your CPF’s Ordinary Account to pay for the 15% down payment.
Do keep in mind that there will be legal costs and stamp duties to be paid at this stage as well. It is at this stage that you should apply for your home loan, up to 75% of the home value.
Upon home loan approval, you will have to start monthly instalments immediately. Your home loan provider will disburse the amounts stated in the table above directly to the developer, according to the schedule and timelines they have provided. Your repayment schedule will depend on how much has been disbursed to the developer at a particular time. Therefore, initial repayments may be lower than later instalments.
It is important to apply for your loan as early as possible, as accessing funds from your CPF to cover your down payment requires an approved BUC loan as a prerequisite.
Understanding how home loans work when it comes to buying such a unit will help you make more informed decisions. Since obtaining a loan approval as early as possible will benefit you during a BUC purchase, it is important to understand the different financing options available.
Lendingpot is an excellent platform to compare different home loan providers. You can register within minutes using your personal Singpass, Myinfo and receive loan offers from banks and private money lenders with the most competitive interest rates. You’ll be able to save time, and obtain the necessary financing to secure your dream home.
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