1. Didn’t Check Valuation It’s quite common for HDB flats but it also applies to private property, such as condo and landed property. For new launches, the developer's initial price is always considered the valuation. However, for resale properties, the bank's valuation may be lower than the seller's asking price.
For instance, if a property is priced at $1.8 million but the bank values it at $1.76 million, the buyer must cover the $40,000 difference in cash, as loans and CPF cannot be used.
Significant gaps between valuation and price can be challenging, especially if funds are tied up in CPF. Check with your own banker or property agent before rushing to make the offer. 2. Pay Off Your Loan Last Minute If you pay off car loans, credit card debts, personal loans, DCP or other loans just before applying for a home loan, it may not immediately improve your credit score. It can take up to a year for repayments to reflect and for past late payments to be rectified. Plan at least 12 months ahead to improve your creditworthiness.
For discharged bankruptcies, eligibility for a home loan typically takes five to seven years after receiving the Letter of Discharge, depending on the bank. Mortgage brokers may suggest alternatives, but these often come with higher interest rates. 3. Viewing First and Loan Later Many buyers prioritize property viewings because they find them more engaging than dealing with tedious paperwork. However, when they come across a house they like—often one with a reasonable asking price and in good condition—it tends to attract other buyers too. In such competitive situations, some rush to make an offer without first confirming their loan eligibility.Before issuing any cheques or making any payment, identify the bank you intend to use. Obtaining an In-Principle Approval (IPA) ensures you know your borrowing limit after the bank reviews your finances. This approval is typically valid for about 30 days.
Without an IPA, you risk placing a booking or Option fee only to later discover that you don’t qualify for a loan.
Since the Option To Purchase (OTP) must usually be exercised within 14 to 21 days(HDB fixed 21 days), failing to secure financing in time could result in losing all of your option fee, for HDB buyers can only exercise after the bank is given the Letter of Offer if they are using bank loan. Alternatively, you may be forced to rush for the fastest available loan, potentially at a higher interest rate. 4. Think IPA Figure is a Fixed Figure The maximum loan amount is not fixed, as it depends on 75%(or lower) of the purchase price or valuation (whichever is lower), as well as factors such as the loan term, the buyer's age, and the property's age(such as when the property’s remaining lease is insufficient to cover the youngest buyer until the age of 95.). Additionally, some banks may not offer loans to buyers purchasing property in certain areas, such as parts of Geylang.An In-Principle Approval (IPA) is not a binding agreement, and a bank can still reject your loan if your financial situation changes or if there were inaccuracies in your application. If your income fluctuates, it's important to reapply for an updated IPA.
Misrepresenting your income or financial details can also backfire—you might initially obtain an IPA but face an unexpected rejection later when the bank conducts a thorough review.
5. Buy First & Sell Later Without Prepare Many property owners prefer to find their dream home before selling their current one, which makes sense logically. However, financially, this approach is not always feasible for most buyers.
Buying first means that buyers must come up with sufficient funds, including cash, loan, and CPF, to purchase the new property without selling their current home. This means that the CPF used for the current property cannot be applied to the new property; only the existing CPF Ordinary Account (OA) can be used. Additionally, buyers will not have access to the cash proceeds from the sale of their current home and will need to have ready cash for the deposit, any CPF shortfalls, renovation costs, legal fees, and stamp duties.
Even if the funds are sufficient, buyers must also consider other factors, such as the Additional Buyer’s Stamp Duty (ABSD) if purchasing private property. Buyers will need to pay an additional 20% of the purchase price in cash or CPF (likely cash, as most CPF has already been used for the current and new property). For a $1 million property, that’s $200,000 in cash, and the ABSD can only be refunded if the existing property is sold within 6 months.
If buying an HDB, there are no ABSD issues, but there is still the pressure to sell the current property within 6 months, which could lead to accepting a lower price as the deadline approaches.
One alternative solution is to make an offer on the new property, pay a deposit to the seller, and request them to hold the property while the buyer sells their current home first. This approach seems like a perfect way to avoid the financial challenges mentioned above. However, it’s not easy to find a seller willing to wait, as most sellers are looking for a quick sale and a higher price. This means the buyer may end up paying a higher price (buying high) and have fewer options for their new property. Additionally, there will be pressure to sell the current home quickly (typically within 2-3 months), which could force the buyer to sell at a lower price.
By steering clear of these mistakes, you can make a smarter, more informed property purchase that suits both your financial goals and lifestyle needs. However, I still highly recommend seeking professional advice, such as from an experienced property agent—like me, for instance! :)
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