By Lynette Tan
If you’ve only got a minute:
- Embarking on the journey to fund your home's downpayment can feel like a formidable task. Cultivating achievable goals for your ideal home and starting with small steps can help.
- Leverage the MyHome Planner to gain insight into your required downpayment, then reverse-engineer your necessary monthly contributions.
- As you accumulate funds for your deposit, explore low-risk investments to grow your capital while maintaining accessibility.
Step 1: Define your “dream home”
Many of us dream about our perfect home. It's good to dream big, but it's also important to be realistic.
What kind of home you want, its location, size, and if you can get housing help (like grants) can all change how much you pay. Be honest about what you can truly afford. Remember to also factor in costs like property taxes, insurance, and renovations. Looking up current home prices in the area you like will help you understand what you can actually buy.
Owning a home is a long-term commitment, not just a quick goal. It needs good planning and regular savings. By setting goals that make sense and understanding what homeownership means in the long run, you'll be better prepared to buy your first home successfully.
Step 2: Review your current finances
Once your goal is established, the next step involves assessing your current finances before mapping out your route. A thorough understanding of your current financial well-being is essential before venturing into the realm of property ownership.
Tackle any outstanding debts. Liabilities such as study loans, credit card balances, and other pending bills can affect your savings strategy. Develop a plan to handle these obligations, prioritising high-interest debts and ways to reduce interest payments. Alleviating your debt load not only enhances your financial position but also boosts your future borrowing capacity.
Subsequently, diligently monitor your earnings and expenses, classifying them to pinpoint areas for reduction. By discerning your expenditure patterns, you can identify opportunities for potential savings and reallocate those resources toward your initial deposit target.
Step 3: Create a savings plan
Saving for a downpayment is often the most significant hurdle in the home-buying process as it requires a large sum of money. Currently, the downpayment for both HDB or private properties using either HDB or bank loan is at 25%.
The main difference is that for a HDB loan, you can use your CPF money to finance the entire 25%, while you need a minimum of 5% cash for a bank mortgage loan.
You can use the MyHome Planner to help you estimate how much downpayment you need by entering the price of a home. Once you've determined your target downpayment amount, establish a realistic savings timeline. Consider your current income, expenses, and the amount you can comfortably save each month.
For example, if you are looking to buy an HDB flat of S$650,000 you would need a downpayment of $162,500. Assuming you are taking a bank loan, you will need to pay 5% in cash (S$32,500) and the rest of $130,000 in cash/CPF. You can then work back with your own timeline and break it down into a monthly amount you need to save.
Use a savings calculator to estimate how long it will take to reach your goal based on different savings rates. Be flexible and adjust your timeline if necessary, acknowledging that life events and unexpected expenses can sometimes impact your progress. A well-defined timeline provides a clear roadmap and keeps you motivated throughout your savings journey.
A simple yet effective strategy for consistent saving is to automate the process. Set up automatic transfers from your salary-crediting account to a dedicated savings account specifically earmarked for your downpayment. Even small, regular contributions can add up significantly over time. Treat these transfers like non-negotiable expenses, ensuring that the money is consistently set aside towards your goal. Automating your savings removes the temptation to spend the money elsewhere and makes saving a seamless part of your financial routine.
Step 4: Maximise Your Savings
Saving for your home’s downpayment may typically take a few years so it’s important to make your savings work harder in the process. Maximising your savings for a home downpayment while keeping your funds liquid and low risk requires a balanced approach. Here are some strategies to consider:
- High-Yield Savings Accounts
High-yield accounts such as the DBS Multiplier account can offer higher interest rates than traditional savings accounts, allowing your money to grow faster. They are also highly liquid, meaning you can access your funds easily when needed.
- Short Duration Funds/ Money Market Funds
Short duration funds generally offer interest rates comparable to or slightly higher than high-yield savings accounts. They also provide easy access to your funds and are typically low risk, helping you to grow your funds at a steady rate. You can check out the SaveUp digiPortfolio here.
- Singapore Savings Bonds (SSBs)
SSBs are a type of low-risk government bond offered by the Singapore government. They offer a safe and relatively liquid way to save, with interest rates that generally increase over time. You can redeem your SSBs any time, though you may not receive the full interest if redeemed before maturity. Their fixed interest payments can also help you forecast your savings growth.
Other than maximising your savings, you can also cut unnecessary expenses to save more, and make extra contributions whenever possible, such as saving any windfalls, like bonuses or cash gifts, to your downpayment fund.
By combining these strategies and diligently monitoring your progress, you can effectively maximise your savings while maintaining the necessary liquidity and minimising risk as you work towards your home downpayment goal.
Conclusion
Saving for your first home is a significant undertaking, but a rewarding one. From diligently budgeting and exploring avenues for increased income to strategically maximising your savings and seeking expert advice, the journey towards homeownership requires focus and planning. Remember to regularly track your progress, adjusting your strategy as needed, and celebrate each milestone achieved. While the path might present challenges, maintaining your motivation and keeping your eyes on the prize will ultimately lead you to the joy and fulfilment of owning your own home.
