5 Things to Consider when Buying A Resale Flat

So, you’re thinking of getting a BTO flat, but you’re worried about the construction delays caused by the COVID-19 pandemic. Or perhaps you were unsuccessful with your BTO application. 

Whatever the reason, you may be thinking of entering into the HDB resale market. After all, if you have an immediate housing need or want to live in a mature estate that already has convenient access to amenities, then getting a resale flat is a no-brainer choice.

But while resale flats have their benefits, remember that there are other key considerations that you need to take note of, such as the financing aspect and the flat’s lease. So before you decide to get a resale flat, here are some of the things you need to know.

5 reasons to consider before getting a resale HDB flat:

  • You May Not Get the Full Loan-To-Value
  • The Maximum CPF Savings That You Can Use May Be Limited
  • Resale Flat Buyers Are Eligible for More Grants
  • The Convenient Location May Come at a Higher Price and With More Noise 
  •  Resale Flats Inevitably Have More Wear and Tear

 

1. You May Not Get the Full Loan-To-Value

Depending on the flat’s remaining lease (and the loan tenure), the loan-to-value (LTV) (both bank and HDB loans) for resale flats may be restricted.

If this is your first property and you’re getting an HDB Concessionary Loan, the maximum LTV is 90% of the resale price or valuation, whichever is lower (the remaining 10% downpayment can be paid in cash, savings in your CPF-OA, or a combination of both). 

For example, if the resale flat that you’re purchasing is valued at $500,000 but you bought it for $510,000, the maximum LTV is $450,000 (90% of $500,000). The difference of $10,000 is known as cash over valuation (COV), which needs to be paid by cash. 

However, if the flat’s remaining lease does not cover the youngest buyer till the age of 95 years, the maximum LTV will be pro-rated.  

On the other hand, you can get up to 75% LTV (based on the lower of the value or purchase price), if you opt for a bank loan. Taking the example from above, the maximum loan you can get is $375,000 (75% of $500,000).

Of the remaining 25%, 5% must be paid in cash while 20% can be paid using a combination of cash and CPF. 

Also, if the loan tenure exceeds 25 years or goes beyond the borrower’s age of 65 years, then the LTV limit is 55%. The lower LTV could impact your finances as you need to fork out more cash downpayment.

Type of loan

Maximum LTV

Downpayment

HDB loan

90%

10% in cash, CPF, or a combination of both

Bank loan

75%

25%, of which 5% much be in cash, while 20% can be cash and CPF

 

Need help on getting home loans or financing for the property? Speak to us on PropertyGuru Finance now

 

2. The Maximum CPF Savings That You Can Use May Be Limited

You can use the funds from your CPF Ordinary Account (OA) for your home loan repayments. However, this is more restrictive for resale HDB flat buyers. Essentially, the maximum CPF funds that you can withdraw depends on three things:

  1. The property’s remaining lease;
  2. CPF housing withdrawal limits;
  3. The type of housing loan

Property’s remaining lease

For starters, the remaining lease must be at least 20 years, and is enough to cover the youngest buyer until the age of 95 years old. Otherwise, the amount of CPF funds you can use will be pro-rated.

CPF housing withdrawal limits

Aside from the property’s lease, the maximum CPF funds that you can use to service your monthly mortgage is based on the Valuation Limit (VL) and Withdrawal Limit (WL). 

The Valuation Limit (VL)

The VL is the valuation/purchase price of the property at the time of purchase (whichever is lower).

For example, if you bought a resale flat for $400,000 but the valuation is $410,000, the VL is $400,000. Likewise, if the purchase price is $410,000 and the valuation is $400,000, the VL is $400,000.

Once the CPF funds used to service the home loan has reached the VL, you would need to pay the rest of your mortgage in cash as you need to set aside half of the Basic Retirement Sum (BRS) before you can withdraw further funds. This is to ensure your CPF savings are enough for your retirement. 

Withdrawal Limit (WL)

Meanwhile, the WL is the maximum CPF amount you can use to service your home loan, which is currently 120% of the VL. For example, if the VL is $400,000, the WL is $400,000 X 120% = $480,000. The WL matters only if you took a bank loan to service your mortgage.

Again, once the CPF funds used to finance your home mortgage has reached the WL, you need to pay the remainder by cash. 

The type of housing loan

Finally, the type of loan matters also (i.e. HDB loan or bank loan). 

If you take a HDB concessionary loan, the amount of CPF funds you can use will depend on the VL.

On the other hand, if you take a bank loan, then maximum CPF funds will be determined by the Valuation Limit and Withdrawal Limit. 

Type of loan

If the remaining lease can cover the youngest buyer till 95 years old

If the remaining lease does not cover the youngest buyer till 95 years old

HDB loan

Valuation Limit

Pro-rated Valuation Limit

Bank loan

Valuation Limit + Withdrawal Limit

Pro-rated Valuation Limit + Withdrawal Limit

 

Still confused? Use CPF’s calculator to determine the actual CPF amount you can use. 

Further read: CPF Withdrawal Limits and How to Retrieve Your Account Statement

 

3. Resale Flat Buyers Are Eligible for More Grants

In 2019, HDB introduced the Enhanced Housing Grant (EHG) to replace the Additional Housing Grant (AHG) and the Special CPF Housing Grant (SHG). 

With EHG, first-time buyers are eligible for up to $80,000 in grants. There’s also no restriction on flat type or location.

But that’s not all, resale flat buyers are also eligible for the Family Grant (up to $50,000) and Proximity Housing Grant (up to $30,000). All in all, the maximum grants that resale flat buyers may be eligible for is $160,000. 

So, though BTO flats are cheaper, resale flats buyers enjoy higher grants amount, which will help to offset some of the cost. 

Suggested read: HDB Grants for BTO, Resale Flat and EC Buyers: How Much Can You Get?

4. The Convenient Location May Come at a Higher Price and With More Noise 

While living close to amenities definitely has its perks, you need to be objective and prioritise the key ones that are favourable to you and your family. 

For example, you may prefer to live close to a mall, MRT station, schools or eateries, but remember that this will undoubtedly jack up the price of the property. Furthermore, it’s not worth it to pay extra if you don’t frequent the mall, eat the food nearby, take the MRT or have schooling children. 

On top of that, remember that malls and MRT stations typically generate more noises and activities, especially during weekends when you’ll be at home the most. This may bother you if you want more privacy or if you’re a light sleeper.  

Read also: Is It Ideal to Live Near Malls in Singapore?

5. Resale Flats Inevitably Have More Wear and Tear

Most resale HDB flats would probably have existing fittings and appliances installed such as air-conditioners, water heaters, lights, cabinets, fridge and tiles — which are all susceptible to wear and tear.

If they’re well-maintained and functioning well, or if your intention is to do a full renovation and replace them, then you don’t have to worry.

However, if you want to keep certain fixtures, or if there’s something that needs repair, then it’s generally not a good idea to ask the seller to repair it before handing the keys over. The reason is because the seller would likely cut corners and repair/replace it in the cheapest way possible — which may not hold well. In the end, you could end up paying even more to repair it properly. 

Instead, you should use this to your advantage and try to negotiate the price down. The money that you save can then be used for proper repairs later on. 

Also, if you intend to keep the fixtures and appliances, be sure to do a thorough inspection; check for loose tiles, wall cracks, squeaky doors, flaky paint, uneven surfaces, fungus and moulds, stains, and leaks. 

Suggested read: Defect Inspection Checklist for New BTO, EC and Condo Home Owners

 

More FAQs on resale flats:

What is a Resale Flat?

Resale flats are HDB flats that are sold in the secondary market and had been previously occupied by the owners for the 5-year Minimum Occupation Period (MOP).

Unlike brand new BTO flats, resale flats do not come with a fresh 99-year lease. The older a flat is, the fewer years will be left on the lease. So, it is important to consider how many years the lease has left when determining if a resale flat is worth the price.

How Much Cash Do I Need To Buy a Resale Flat?

If you’re taking a HDB loan, you need to pay a minimum of 10% downpayment (which can be paid by a combination of cash, CPF, or both). If you’re taking a bank loan, then you need at least 5% cash downpayment. However, you will also be required to pay the Option to Purchase (OTP), stamp duties, as well as other administrative fees

Who Is Eligible For a Resale Flat?

To be eligible for a resale flat, you must be at least 21 years old if you’re buying as a couple, and 35 years old if you’re buying as a single. There must be at least one Singaporean buyer or two Singapore permanent residents. You must also meet the Ethnic Integration Policy and Singapore permanent resident quota of the block/neighbourhood. 

Can I Buy a Private Property If I Own a HDB Flat?

You can buy a private property if you’re a Singapore citizen and have fulfilled the 5-year MOP period. If you’re a Singapore PR, you can’t own a private property and HDB flat at the same time, and must dispose of the HDB flat before buying a private property. 

 

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