Getting a flat (or any type of housing) is one the most important events in our lives, especially since our country is so tiny and everyone is vying for their own space! However, too many people are giving way too little thought to their home purchases in their eagerness to get a home, and are a little too ready to sign themselves up for 30-year loans they’ll be repaying possibly for life.
To help with your decision making, here are five considerations to think about before paying for your first abode…
#1 Choosing a better location
Okay, I know Singapore is a small country, but some people really underestimate how long a commute can get. In their zeal to finally become a homeowner, they convince themselves that they can “get used” to a potentially inconvenient location. Unfortunately, having to commute 2.5 hours from Bukit Panjang to your office at Changi Business Park is something that you never really get used to.
If you decide to have kids and your parents have agreed to look after them while you’re at work but they also happen to live in Jurong West while you’re in Punggol, we hope your kids know how to use Skype or you’re never going to see them.
The future of your location is also important to consider. If your new home is situated right next to the site of a proposed MRT station that’s supposed to start running in three years, you’re way better off than the poor souls who live in between Chua Chu Kang and Bukit Gombak, where the government has said they are not going to build an MRT station anytime soon.
#2 Understanding how home loans work and considering more mortgage options
If Singapore’s home ownership rate is over 90%, how come so few people understand how home loans and mortgages really work? Many Singaporeans blindly sign up for the HDB loan when they buy their first home without really understanding how it differs from a bank loan. After all, you won’t get rejected so long as you meet the criteria, so that must be a good thing right? That means they also don’t realise that there’s a high chance they’re paying higher interest rates as well.
Then there are those people who sign up for home loans at the very bank where they have a savings account. If you’ve maintained an account with this bank since you were five, that means it must be trustworthy right? Facepalm. These people are totally missing the importance of shopping around for home loans and comparing interest rates so you get the cheapest possible loan. Well, there’s always refinancing later on….
#3 Overspending on renovations
After spending your life savings on the downpayment of your new home, what’s a little more cash? Unfortunately, Singaporeans tend to go nuts when it comes to renovating their new homes, particularly resale property. According to a recent survey, the average amount Singaporeans spend renovating HDB flats is $56,000, with some people spending a six figure sum.
Condo purchasers spend an average of $80,000. Okay, we don’t want to burst your bubble and tell you that you shouldn’t convert your flat in Sengkang into a New York loft-lookalike. But don’t go nuts, and try to stick with themes that won’t exhaust all the Baby Bonus money you plan to collect once you’ve settled into your new place.
According to the aforementioned survey, the average HDB flat or condo owner going for a contemporary theme spent an average of $82,000. Clearly that’s an expensive look to have. Conversely, those who wanted retro themes spent an average of $30,000, probably because they didn’t have to completely get rid of the previous owners’ old school tiles and grills.
#4 Filling up the house with too many things
After decades of living with your parents and dying to spread your wings and have a place of your home, it can be all too easy to go wild personalising your long-awaited new space. But seriously, avoiding buying too much decorative junk and filling up your new home with shiny new playthings.
Right now, all these belongings may look eclectic. But give them a couple of years and a few layers of dust, and your home will start to resemble the dwellings of one of those hoarders. Your tastes will change, and someday years after you’ve quit pole dancing classes, you’ll regret having wasted the money installing that pole on your kitchen counter.
#5 Make sure you have an emergency fund
You should already know the importance of maintaining an emergency fund so you don’t have to turn to high-interest credit card debt to save yourself should you get run over by a guy on a hoverboard on your way to work and have to seek medical help.
When you become a homeowner, you need to increase the amount in your emergency fund, because there now more expensive things that can go wrong. Your air-con or fridge could break down and need immediate attention. Your cat/kid/best friend/maid could throw up on the carpet which you would then have to get cleaned professionally.
Whatever it is, you need a bigger emergency fund as a homeowner than as someone living with parents. And maybe you’ll finally understand why your parents went ballistic every time you forgot to turn off the air con or water heater.
Written by Joanne Poh, for MoneySmart.sg, a personal finance portal that helps you to maximise your money.