Monday, December 21, 2015

Why young Singaporeans don’t need to worry about buying their first HDB Home in Singapore?

Almost 2 years ago in February 2014, I wrote an article on "How much money does a couple need to earn in order to afford a $300,000 HDB flat?" and it went viral. Buying their first home seems to be a concern among young people in Singapore. Is it really that scary to own a house as a young person living in Singapore? It is actually not so scary if we know what to do and how to buy a house which we can afford comfortably. Owning a house should be an enjoyable process and not a stressful situation which we put ourselves into. So what can we do to make owning a house in this high housing price era more enjoyable? Let me show you how it can be.

Paying For the Down Payment of A New Home

All of us would know that we can use our CPF to buy a house. The down payment for a house is 10% for HDB which means any of us who buy a $300,000 HDB flat would need to come up with $30,000. This is certainly quite a huge sum of money for young couples who want to own their own home. For couples, saving up for their wedding, the renovation works and the honeymoon is already stressful enough. Thankfully, we do not have to save up additionally for the down payment of a house because CPF has automatically saved it for us.

A young person, age 35 and below, earning about $2,500 a month in Singapore would have about $20,000 in his CPF OA account within 3 years of working. 23% of his/her salary is contributed to the CPF OA every month by himself and by his/her employer.  The money in CPF OA can be used for housing which can be used to pay the down payment of a house. Together with his or her spouse, one can safely afford the down payment of a house within 3 years of working.

I started working early in my life right after my National Service. After working for 5 years, I already had more than $60,000 in my CPF accounts in total. I did not start out with a high salary, only $1,700 per month when I just started working and CPF actually helped me accumulate quite a good sum of money. Now, I don't have to worry about housing cost. The savings which I have accumulated can be used for other stuffs such as wedding and renovation costs.

Paying For the Monthly Instalment of A New Home

Besides using CPF for the down payment of a new home, young couples can also use CPF to pay for the monthly instalment of their home. A couple earning $2,500 will have $575 contributed to their CPF OA each. Together, they have $1,150 every month from their CPF OA to pay for the monthly instalment of their new home. If they buy a home within their means, they don't even have to fork out extra cash to pay for the housing loan.

If we buy a home at $300,000, after 10% down payment, we'll need to take a loan of $270,000. The monthly instalment for a $270,000 loan with HDB at 2.6% for 25 years will be $1255 per month. Now, this is still about $100 more than what a couple with combined income of $5000 would have in their CPF Ordinary account.

However, if we and our spouse have a combine income of $5500, the monthly contribution to our OA would be more than sufficient to pay for the housing loan instalment for a $300,000 HDB flat. The instalment will still be $1255 while this couple their combine CPF contribution in their OA is $1265. This is more than enough to pay their housing loans fully by CPF without the need to come out any cash.

Furthermore, there are additional measures to help young Singaporeans in owning their first HDB home a more fuss free experience. Let's take a look at the last part below on the subsidies which we'll be able to get.

CPF Housing Grants for a New Home

For BTO HDB Flats

I've researched and summarised the grants available for a new HDB home. This is for first time applicants only. The special housing grant only applies to 2 room, 3 room and 4 room flats in non-mature estates only. 

Average Monthly Household Income Over 12 MonthsAdditional CPF Housing GrantSpecial CPF Housing Grant (Not applicable for 5 room HDB)Total Grants
Up to $1500$40,000 $40,000 $80,000
$1,501 to 2,000$35,000 $40,000 $75,000
$2,001 to 2,500$30,000 $40,000 $70,000
$2,501 to 3,000$25,000 $40,000 $65,000
$3,001 to 3,500$20,000 $40,000 $60,000
$3,501 to 4,000$15,000 $40,000 $55,000
$4,001 to 4,500$10,000 $40,000 $50,000
$4,501 to 5,000$5,000 $40,000 $45,000
$5001-$5500Nil$35,000 $35,000
$5501-$6000Nil$30,000 $30,000
$6001-$6500Nil$25,000 $25,000
$6501-$7000Nil$20,000 $20,000
$7001-$7500Nil$15,000 $15,000
$7501-$8000Nil$10,000 $10,000
$8001-$8500Nil$5,000 $5,000

The CPF Housing Grants will be fully credited into the CPF Ordinary Account of the Singapore Citizen (SC) first-timer applicant, who must be listed as a co-applicant. No cash is disbursed. For a couple applying for the HDB together. each applicant will receive half of the full grant amount.

We can get as high as $80,000 in CPF housing grants. That to me is quite a substantial sum of money. Even if you and your spouse have a combined income of $8000, you would still be eligible for the Special CPF Housing Grant if you are not purchasing a 5-room HDB.

*For more information on the CPF housing grants for first timer applicants, please refer to HDB website here

For Resale HDB Flats

If you don't have time to wait for a BTO flat, you can also apply for a resale flat. Resale flats are known to be more expensive than HDB flats but not to worry, there are some other grants to help in this cost.

Family Grant

The grant available for this scheme is $30,000. To be eligible, your household income must not exceed $12,000 (revised from $10,000 before 24 August 2015). You must be a Singaporean and form a family nucleus with another Singaporean or PR. This grant is only available for first time home buyers.

Additional CPF housing Grants

The additional CPF housing grants is similar to that for the BTO applicants as below:

Average Monthly Household Income Over 12 MonthsAdditional CPF Housing Grant
Up to $1500$40,000
$1,501 to 2,000$35,000
$2,001 to 2,500$30,000
$2,501 to 3,000$25,000
$3,001 to 3,500$20,000
$3,501 to 4,000$15,000
$4,001 to 4,500$10,000
$4,501 to 5,000$5,000

Proximity Housing Grant (New from 24 August 2015 onwards)

*Proximity housing grant has been enhanced as announced in Budget 2018. Changes have been made as below.

Under this scheme, you can receive up to $30,000 in grant.

The eligibility criteria is:

Your parents/ married child are:
  • living with you in the resale flat
  • living in an HDB flat in the same town or within 4km
  • owner-occupants of private property in the same town or within 4km
If you live near your parents within 4km, you can receive $20,000 in grants. If you purchase a flat to live together with your parents, you can receive $30,000 in grants.

The above grants definitely come in handy to help subsidise the housing cost for first time home buyers. Grants are disbursed into our CPF accounts for our housing needs.

Should I Buy The Biggest HDB Available?

More often than not, I've heard suggestions to buy the biggest HDB flat as early as possible or even on their first home. But, is this a wise advice for young couples? For a fuss free home ownership experience, I strongly believe we should buy a HDB flat within our means.

In Singapore, loans for HDB flats are limited to 30% of our gross monthly income. This is the mortgage serving ratio (MSR) set by the MAS to make sure home owners do not over stretch their finances. If we lose our jobs or should interest rates increase, the MSR of 30% will make sure we can still service our loans.

CPF also has a First Home Calculator to help home owners calculate and make sure they do not overstretch their finances. If you're planning to buy your First Home, you can check out the calculator here.

Another point to consider is that our first home is actually not an investment but a liability. This is because even if you sell the house you're staying in, you still need to buy another house to live in. If you're planning to buy a property for investment, your first home should be bought conservatively so as to save up capital for a second investment home.

Do young people have to worry about buying their first HDB home in Singapore? For me, I can say that when the time comes for me to apply for my first home, I do not have to worry much at all. The money in my CPF account is more than enough to cover all the necessary cost for my first home. Furthermore, with the CPF housing grants, the experience of owning a home will be much better.

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Related Posts:
1. Should Couples Buy A 5 Room HDB Flat For Their First BTO Application?
2. The 3 Big Decisions in Life - Marriage, Buying a House and Retirement


  1. Very detail-oriented and well explained written. After reading this article I have a sense of how to control my finance and go for a flat that is well within my means and not to overstretch my finance. Thank you for your post! Cheers.

  2. Replies
    1. Hi Damien,

      What you mean by losing job for 3 months?

    2. i mean this $5500 monthly combined salary is JUST barely sufficient to contribute to the monthly CPF for deduction. Imagine losing one's job for 3months is like defaulting paying of "rental" to HDB.

      Hence, young Singaporeans DO need to worry about buying their first HDB Home in Singapore. They are treading on thin line which they can't just be happy merry with just $5500 and CPF to take care of the monthly payment.

      Looking at it, most young people monthly OA is near to zero after deduction from HDB. Need to stash away cold cash and invest remaining cash in stocks for dividends as passive income.

      Hence, by looking at the HDB cost, kids' education and living expenses, do not fancy how young people follow the latest trends or dine in high end restaurants which we see on FB. Normal daily living expenses is high already... let's not talk about small luxury wants.

      Live simple, live normal. $5000 in $5 market pouch is better than $5 in $5000 LV pouch. No one will bother if you have $$ to pay your bills except ourselves =)

    3. Hi Damien,

      Yes i do agree with you. That's why i mention we should buy a house within our means. No point buying over our means and have a hard time paying for it later.

  3. Buy within one's means, with sufficient preparation beforehand.

  4. I wrote about this in Sep 2015. Hope it has some relevance.

  5. Hi, sorry for commenting on such an old post. Can I just check if the eligibility of the grants kick in during the HDB application period or only few years later when a couple receives their the keys?

    1. Hi,

      I'm not sure when the grants will be credited in. You'll have to check with HDB or CPF board for it.