One does not need to wait until you are wizened and old to access the monies in his or her Central Provident Fund (CPF) account. Most of the people will find ourselves to use the monies in their CPF account for their home purchases. This article will discuss the 3 key factors to look out for the usage of CPF fund for buying property.
The monies in the CPF Ordinary Account (OA) can be use in the purchasing of any residential property in Singapore be it a new or resale public housing flat built by the Housing Development Board (HDB) or a private home that is under construction or in the resale market.
For the Usage of CPF fund for buying property, it is not like withdrawing from the ATM machines like as like your bank account. This article attempts to give you an insight of how and when this cash can be used.
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Usage of CPF fund for buying property: What can it be use on?
When purchasing a residential property, one does not just pay to the cashier one million dollars and then the cashier will return any change if there is.
There are actually a series of items to be paid at various stages of the sale procedure for the Usage of CPF fund for buying property. It will be good to understand beforehand that which items that the money in the CPF OA will be able to use to pay for.
The Usage of CPF fund for buying property is as for the components below:
Usage of CPF OA for Down-payment
The money in the CPF OA can be used to pay off the down-payment for purchasing a residential property but do take note take there are still a portion of the down-payment that requires payment by cash.
For purchasers of flat directly from HDB and are using HDB loans, the down-payment of 10% can be paid completely using the amount in their CPF OA. For first timer couples that are below30 years of age there could also be qualified for the HDB’s Staggered Down-payment Scheme.
• For purchasers of resale HDB flat and taking HDB loan: The deposit of up to $5,000 that is payable to the seller must be in cash.
• For purchasers of HDB flat who are getting a bank loan: There will be a 25% down-payment which 5% must be payable in cash.
• For purchasers of private residential developments that are under construction: The down-payment is also at 25% which 20% of it or 5% of the purchase price must be in cash.
• For those purchasing a private resale unit, the down-payment of 5% which include a 1% option fee payable to the seller must be in cash.
Other purchase price portion that is not covered from the mortgage loan
After the down-payment is made, purchaser can use a mix of CPF amounts and/or cash to pay for any other amount of the purchase price that the mortgage loan does not cover.
This lump sum of money will be made upon completion to the seller or, in the event of Build to Order (BTO) or residential projects that are under construction, whenever payment is due.
Usage of CPF OA for Repayments of Home Loan
The amount in the CPF OA can also use to repay monthly mortgage installments.
If the buyer’s CPF OA is drained out in the in the early stages of the property purchase but is still getting CPF contributions to their account every month, these amounts can also be used to offset the monthly mortgage installment. This is applicable to both the bank and HDB loan.
Usage of CPF OA for Stamp Duty and Legal Fees
The cash in the CPF OA can also use to pay the legal fees, the stamp duties as well as any other administrative fees applicable. The HDB or the lawyer will have the purchasers made payments for these fees.
Usage of CPF OA for Home Protection Scheme Premium
For purchasers of HDB flat that do not have any insurance policy that covers the outstanding mortgage loan, they must be covered with Home Protection Scheme which will cover them and their families from losing their homes in the event the owner die, suffered from terminal illnesses or are permanently and completely disabled. The premiums of the Home Protection Scheme can be paid using the funds from the CPF OA.
Usage of CPF fund for buying property: Limitation on the sum of money that is withdrawable
Certain home purchasers will have limitation to how much of their CPF OA funds can be used in a home purchase.
They can be affected by 2 limitation types.
Usage of CPF fund for buying property: The Valuation Limit (VL)
There is the purchase price of the property which the home is transacted at and there is also the market value of the said property. The VL denotes the lower one of these 2 amounts.
An example is that if a purchaser paid $900,000 for a home but the market value of this property is only at $850,000 then the VL will only be $850,000. The funds in the CPF OA can be only be used to pay up for the purchased property based on the VL which inclusive of the mortgage repayments and the down-payment.
Usage of CPF fund for buying property: The Withdrawal Limit (WL)
The WL will be more than the VL and permits withdraw of the CPF funds more than the VL. As of current, the WL stands at 120% of the VL.
With the understanding of the WL and the VL, it will be easier to see which of these will be applicable to different group of home buyers.
|Type of home purchase with a minimum lease of 60 years||Is the VL applicable?||Is the WL applicable?|
|HDB new flat with HDB loan||No Limits||No Limits|
|Resale HDB flat with HDB loan||Y||N|
|Resale/New HDB Flat with bank loan||Y||Y|
|Private residences with bank loan||Y||Y|
There will be another catch on this. Though the WL permits the use of the funds in the CPF OA above and over the VL, for those who are under 55 years old, they could only withdraw the additional 20% on top of the VL if they have already set aside the latest Basic Retirement Sum in the Special Account (SA and the OA of the CPF account. For those who are above 55 years old, they will have to have the BRS in their OA, SA and Retirement Account (RA) in order for the usage.
Revision of CPF rulings for aging flats
With the revision in the CPF rulings for home purchases, it will allow home purchasers to get older flats with high loans from CPF so long the remaining lease of the purchased property covers the youngest purchasers till 95 years old of age.
Minimally, the HDB flats still must have a minimum of 20 years lease left before they are permitted to be payable using CPF money.
|Revisions||Prior to 10 May 2019||From 10 May 2019 Onwards|
|Minimum lease to acquire HDB mortgage loan and usage of CPF||HDB Flats with at least 60 years lease can use CPF for payment base on the VL.||HDB Flats with minimum of 20 years lease left and also can cover the youngest purchaser to the age of at least 95 years old can use CPF to pay up to the VL.|
|HDB Flats with lease 30 years to below 60 years can use CPF for payment if the property’s lease remaining will be able to cover the youngest purchasers up to the age of 80 years old, capped at portion of the purchase price or the VL whichever one is lower.|
|Minimum Lease||Age of Owner + Lease remaining must be at minimally 80 years||Age of Owner + Lease remaining must be at minimally 95 years|
|HDB mortgage loan||Limitations on the sum of HDB home loan for buying of HDB flats that are less than 60 years lease.||A maximum of full Loan-To –Value (LTV) limit of 90% for mortgage loan so long the HDB flats have a minimum 20 years lease remaining and can also cover the youngest purchaser to the age of 95 years old.|
There is also possibly to use portions of the CPF funds to pay for the property upon reaching the age of 55.
When the purchaser or home owner hit the age of 55 years old, the CPF OA will not be the same anymore. Put it simply, if there is not much CPF funds, there could be only $5000 in the OA as the rest of the amount together with the monies in the SA will be channeled to the newly created RA.
With so small amount of funds in the CPF OA, does this mean that upon reaching 55 years old, one can no longer purchase property? Not really.
If the housing loan is not totally paid off upon reaching the age of 55, before turning 55 years old, home owners can send in application for the reservation of the amounts in the CPF account for repayment of housing loan. This will avoid having the monies to transfer into the RA upon reaching the 55 years of age. This will, however, have some effect on the monthly payouts for retirement so it is advisable to proceed with care.
After reaching 55 years old, a portion of the CPF savings can still be used to make repayments for housing loan, this is provided that the pledging to the residential property and there will still be the minimum for the BRS in the CPF account after the withdrawals.
With the pledging of the property, it means the commitment to refund all the sum of the monies used in the CPF OA with accrued interest when/if the said residential property is sold.
Have more questions regarding how your CPF funds can be used for property investment? Talk to us now and we will answer to your query.