The fact is, plenty of average, middle-Income Singaporeans do buy their first flat in their 20’s – and some even start with a condo (usually with parents’ help though).

For these young home buyers who don’t fall into the “wealthy” category, there could be potential painful lessons in store, which is why it’s better to read this and learn from other people’s experiences.

Buying a first home is a major milestone is anyone’s life, and the responsibilities that come along with it are commensurate with the task.

While it seems nigh impossible to keep track of every detail, there are certain missteps you should especially take note of and avoid, especially since they can cost you thousands of dollars.

1. Don’t know what’s your home budget

Before you even start visiting homes, it’s important to have a good idea of how much you can afford to pay for your new place.

With that in mind, there are two costs to consider as a new homeowner:

  • Money for up front cash or CPF down payment
  • Monthly home loan payment
  • Monthly utilities, insurance, maintenance

The monthly costs should add up to a maximum of 30 or 40 per cent of your take-home salary.

It’s tempting to structure your home search based on list prices, ideal locations first. However, the right and realistic way is to start with the money – how much money do you have?

2. Don’t understand HDB vs Bank Loan

Choosing a home loan is one of the more complicated aspects of becoming a homeowner. Most people sign any home loan recommended to them by their financial advisor, property agent, aunty, or uncle without understanding which loan they’re taking.

Bank home loans are quite expensive now, with fixed interest rates at 4.5 per cent.

If you’re buying your first home, opt for the safer HDB loan with interest rate of 2.6 per cent.

With this in mind, it is important to compare the best rates available before applying for any home loan.

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3. You can negotiate the house’s sale price

New HDB resale or condo buyers also tend to fall victim to real estate agents that are incentivised to close deals quickly.

These agents may try to rush home buyers into making a quick decision, which ends up in a higher sales price than is optimal for the buyer.

Our advice on this topic is to thoroughly research similar properties before viewing a flat and engaging in negotiations. Once you have a feel for the average cost of a similar home, you’ll have a good idea of whether you are receiving a fair offer.

4. Don’t Forget All HDB BTOs & Resale Have MOP Periods

The most common oversight among younger homebuyers is the effect of the Minimum Occupancy Period (MOP) for all HDB properties.

If you’re in your 20’s, odds are you’re buying your very first home. This may result in thinking only about the near term, and not considering what might happen in the future.

Others may buy an HDB flat but then decide they’re going overseas for work or study – only to realise they’re still within the MOP period and can’t sell nor rent.

No worries, I’ll just move abroad and leave my HDB vacant, then! Sure, but you’ll have to continue serving your MOP once you relocate back to Singapore. Note that only the years you spent living in your flat count toward your MOP.

Here’s a summary of all HDB property types’ MOP periods:

  • HDB BTO: 5 years
  • HDB BTO PLH: 10 years
  • HDB DBSS: 5 years
  • HDB SERS: 5 or 7 years
  • HDB Resale (Open market): 5 years
  • HDB Resale PLH (Open market): 10 years
  • HDB Fresh Start Housing Scheme: 20 years

5. Shouldn’t get a house near your office

One of the best pieces of advice to give younger potential homeowners is: don’t buy for the life that you lead today.

Gone are the days when Singaporeans would get their first job, and then stay on with that employer for the next 25 to 30 years.

These days, it’s common for Singaporeans to change jobs more often – and when you’re young, those job changes may be more frequent. as you feel out your career.

This can mean “living near the office” is no longer a house buying consideration. The home you pick may be close to your current job, but an hour away by bus from the next one.

Or you may think proximity to an MRT station doesn’t matter, since you are currently working from home or are self-employed. This can be a problem If you end up with a nine-to-five gig later, and your Executive Condo is far from any public transport.

What we’re saying here is, unless you know for certain that things aren’t going to change in the future, it’s worth it to consider getting a home with good access to public transport – even if you feel you don’t need it right now.

t also helps when you are looking to sell it as it will obviously cover a bigger audience. Remember, buying a home isn’t like buying a car. You can’t just simply change your home when it doesn’t suit your needs anymore, there are opportunity costs, selling costs, and time to take note of.

6. Think twice before accepting your parents’ money

If you decline your parents’ help, you may end up buying a home five or even 10 years later. We agree that’s painful.

However, before taking money from mum and dad, consider the potential complications.

If your parents are co-owners. who makes decisions such as when to sell the property?

Also, what happens if there’s an emergency, and your parents can no longer contribute to the mortgage? Would you be in a position to pick up their share of the burden?

The most dangerous arrangement is when your parents offer to sell their home, and give you the proceeds to buy a big condo – with the plan that you can all move in together.

At least half of the “how I became homeless” stories we encounter start this way.

If you accept your parents’ money, and later you find you can’t live under the same roof as them – no matter how big the property is – how will they move back out

There’s also the emotional aspect of always feeling like you owe your parents for the house, and that can suck out the joy of homeownership.

Like Susan Newman, a social psychologist and author of “Nobody’s Baby Now: Reinventing Your Adult Relationship With Your Mother and Father” said in a New York Times article: “These gifts have strings attached: it’s the way some parents control their adult children”.

7. Buying a house often means you can’t own a car

Your maximum loan repayment (for a bank loan) is capped at 55 per cent of your monthly income. This is inclusive of other loans such as car loans, and education loans. This is called the Total Debt Servicing Ratio (TDSR).

For most young, middle-income Singaporeans, buying a car will cause you to bust the TDSR. This either means coughing up a much bigger down payment or buying a smaller unit that you’re truly happy with.

To be clear, we feel It’s always better to prioritise homeownership over car ownership. But if you must have both, then at the very least try to buy your car after you’ve secured your home loan (and talk to your financial advisor, because that sounds like it could be a dangerous stretch).

Thankfully though, Singapore’s public transport is great, and the country is small enough that you can definitely get by without a car.

8. Wiping out your savings for down payment is a risk

For most young buyers, the challenge is in the massive down payment that needs to be paid in cash or CPF monies.

Even if you earn a high salary, you still won’t be allowed to borrow 100 per cent of your property price.

HDB will only lend up to 80 per cent of the flat’s price or value, whichever is lower. This means you need to have the remaining 20 per cent saved up, in CPF or elsewhere.

Private properties, condos, and ECs, have even higher downpayments.

You need to use bank loans, and these require a minimum down payment of 25 per cent. The first five per cent has to be in cash (and no, you can’t take a loan to cover that).

The greatest danger for young buyers is that, sometimes, the down payment wipes out their entire bank account, but they insist on going ahead with an expensive HDB or condo because they’re impatient.

We can’t overstress how dangerous this is, and it often leads to other problems like debt.

When you have zero savings. your condo won’t pay for medical emergencies or even your meals – and that often leads to borrowing. It could also lead to further problems, like forcing you to make foolish decisions or undue stress.

9. Consider your lifestyle, travel wants, big wedding expenses

It’s true that if you start paying for your home in your 20’s instead of your 30’s, you’ll be done with the mortgage sooner.

However, you need to sacrifice more than just cash. You may not have cool lifestyle trips such as living abroad for a month, backpacking, a big wedding, or an active social life of drinking and dining.

Unless your income grows quickly, chances are your years from 20 to 35 are going to be spent on a tight budget as you take on loan repayments and (if you bought a condo) maintenance fees.

We may have developed an unhealthy culture where young Singaporeans are taught to worship such lifestyle sacrifices in favour of hustle culture.

Try to look outside of this, and realise you won’t get your lost years back, even if you do manage to own a home earlier.

10. Ensure you’re financially stable & ready

If you buy a house before you’re financially ready, and something goes wrong such as a retrenchment or illness, you could end up unable to pay your monthly home loan.

In our experience, this almost always means your family has to step in.

This might mean mum and dad taking cash out of their retirement fund to help you; or in some cases, even grandparents have to pitch in.

The sense of guilt can be severe when your mortgage becomes a liability to people you care about.

11. Buy a home that you can actually afford

This probably applies to everyone else, but you should know that what you can comfortably afford (in terms of stress levels, etc) is different from what the bank says you can afford.

While Singapore is already quite strict with how much you can borrow, sometimes it pays to be even more prudent with your home purchase.

It’s easy to be taken in, especially when you see newer and more luxurious spaces, but you shouldn’t make the assumption that you can and will always be advancing in your career and earning more.

With the economic outlook around the world not looking too great right now (plus rising interest rates), it’s best to err on the side of caution and consider not maximising your housing loan if you can.

12. Consider the legal fees, stamp duty, home insurance

It’s a common oversight, many younger homebuyers only think about the purchase price and forget everything that comes after.

Do remember that you also have to pay:

  • option fee for HDB: $500 to $2,000
  • option fee for EC, condo, private properties: 5%
  • lawyer’s fees for bank home loans
  • buyer’s stamp duty
  • home insurance
  • renovation cost
  • HDB monthly conservancy charges: $19.50 to $101
  • Condo monthly maintenance fees
  • Property tax: 0% to 16% of your property’s annual value (AV), which is an estimate of the total annual rental value of the property.

The IRAS has a hand property tax calculator to help you estimate your annual tax burden. Otherwise, you can also check the AV of any property using the IRAS website at $2.50 admin fee.

Finally, homeowners insurance. There are two common types of home insurance – fire insurance and home insurance.

Fire insurance

Required by most lenders for HDB flats, fire insurance is still quite expensive for most homeowners due to the HDB Fire Insurance Scheme.

fire extinguisher

Home insurance

Also known as home contents insurance, home insurance provides a more comprehensive coverage. It typically protects your home from financial damage costs caused by fires, leaks, burglary, and natural disasters.

Some plans may even provide you coverage for human and pet injuries that occur in your home.

Home insurance policies vary in cost due to the type of home and desired coverage amounts.

For example, the average cost of home insurance for a 4-room HDB flat costs about $150 per month. On the other end of the spectrum, insurance for landed homes typically costs about $270 on average.

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13. Home renovation is not compulsory

There’s no doubt that there is a trend right now for younger Singaporeans to do up their homes, with many starting their own lnstagram accounts to document the process.

It’s easy to see that this is the “norm” and part and parcel of buying and molding a home to your liking. But sometimes, again it might be wise to consider just how long you would actually be staying in the home.

We’ve seen cases of younger homeowners tearing up perfect and high-quality marble slab flooring just for the sake of it – or just because they prefer that (much cheaper and low quality) industrial cement screed look.

Or others that insist on hacking down the high-quality carpentry in kitchens, just to have that classic English cottage kitchen from Taobao they’ve always dreamed of.

Finally, it might not always make sense to plow too much into renovation costs when you might outgrow the place in five years and sell the HDB after MOP.

While you can take renovation loans, it’s still important to consider the extra financial burden of paying multiple loan instalments each month.

Now, if you intend to just go cheap on renovations, great! You’ll have more room in your budget for other necessary costs.

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Avoid Costly Mistakes with Careful Planning

Your new home will not only be your residence, it will be an investment in your future. As with any investment, it is easy to make costly mistakes that eat into your finances.

Keeping clear of these common mistakes will help ensure the highest return possible on your purchase.

This isn’t to discourage younger Singaporeans from buying a home!

Rather, the point is that you shouldn’t feel compelled to buy until you’re well and ready. If it means waiting till you’re 35, or even 40, then so be it – better that than to saddle yourself with massive liability.

The same goes for renting. Renting is not always a bad thing.

Forget cliches about how renting is “helping your landlord to pay the mortgage”. By all means. aim to own your home eventually – but it’s not a “‘waste of money” to rent until you’re ready.

Part of this story first appeared on Stacked, ValueChampion.