5 expenses to consider when buying your first home

When you're putting together a budget to estimate location, size and type of home you plan to purchase, it's tempting to structure your search based on list prices. While this represents the most significant cost of being a homeowner, it is just one of many that you'll have to consider when purchasing your first home.

Here are some tips and factors to consider for your budget, as suggested by ValueChampion!

1) Home loan payments

First-time homebuyers are only required to put as little as 4% cash down for their purchase, assuming they have a 25-year bank loan. However, this figure belies the total cost homeownership due to interest costs. Homeowners will have to consider the ongoing costs associated with housing loans in the form of required monthly payments.

Here are some ways to keep your monthly payments affordable:

- Choose a less expensive home. Doing so will allow you to be burdened with less debt, and as a result, you'll face smaller monthly debt obligations!

- Find the cheapest home loan rates. This will come in handy especially if you're not willing to purchase a less expensive home.

- Choose a longer loan tenure. This will help you to spread the cost of your loan out and pay smaller monthly payments, though you will likely end up paying more in total interest.

- Refinance your home loan every few years. Capitalise on low introductory rates offered by banks seeking to attract new customers!

2. Renovation & maintenance costs

If you have chosen to purchase a HDB resale flat over a BTO unit, you may feel the need to renovate your new flat. As such, it's crucial to consider the cost of renovations, as well, when purchasing your first home.

ValueChampion estimates that the average cost of renovating a 4-room HDB flat costs about $55,000. However, this may vary depending on the number of rooms being renovated, style of renovation, and materials used. For instance, a simple upgrade of one or two rooms will cost significantly less than a more extensive remodel with high-end finishes!

While there are financing options available to those hoping to renovate, it's still important to consider the financial burden of making multiple loan payments each month, if you're also on the hook for a home loan.

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Even if you plan on forgoing renovations, you'll still have to have room in your budget for ongoing maintenance costs. HDB estates tend to charge from about $20 to $100 per month depending on your citizenship and flat size. On the other hand, condo maintenance fees typically cost around $300 a month, but can cost up to a whopping $1,000 monthly!

3. Home & fire insurance

Insuring your home is not the most expensive aspect of being a homeowner, but it can be a crucial one. 

There are two types of common insurance:

i) 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.

ii) Home insurance

Also known as home contents insurance, home insurance provides a more comprehensive coverage. It typically protects homeowners from damage costs caused by fires, leaks, burglary, and natural disasters. On top of that, it also provides insurance coverage for expenses related to 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.

To determine how you should pay your desired coverage, it can be helpful to consult free online guides, like ValueChampion's.

4) Property tax

Another long-term cost of owning a home is the expense of property tax. These are levied based on your property's annual value (AV), which is an estimate of the total annual rental value of the property.

In Singapore, property taxes are charged on a progressive scale, from 0-16%. For instance, an owner occupied home with an annual value of $60,000 would be subjected to 0% for it's first $8,000, 4% of its next $47,000 of value ($1,880), and 6% on the remaining $5,000 ($300), for a total tax bill of $2,180.

The IRAS has a hand property tax calculator to help you estimate your annual tax burden. It is also possible to check the AV of any property using the IRAS website for just $2.50 per property!

5) Other purchasing fees

In order to purchase a home in Singapore, there are a number of fees that you must pay. For instance, those purchasing an HDB flat must pay an option fee of $500 to $2,000 for a BTO unit or $5,000 for a resale flat. Meanwhile, those purchasing executive condominium, or private properties, must pay a 5% option fee.

Other expenses include a buyer's stamp duty (1-4% of property value) as well as fees for a professional appraiser and a legal fee for working on a mortgage with a lawyer.

In total, these fees can amount to several thousand dollars, which can eat into your overall housing budget. Besides that, first-time homebuyers considering resale flats should also look into housing grants, as they could receive up to $120,000 depending on their income and desired flat type.

This article was first published on ValueChampion.