Explainers: Using Your CPF to Buy Property
Buying a home is both a milestone and a very expensive undertaking, but that’s exactly what your Central Provident Fund (CPF) account is for. The cash you stashed away in your CPF accounts can pay for many things, including your first home.
Still a newbie with the whole CPF thing? Then, allow us to make it a little easier for you with this handy guide discussing everything you need to know about using your CPF to purchase a property in Singapore.
Purchasing an HDB Flat
Out of your three CPF accounts, you can use your Ordinary Account (OA) for property-related purchases. Under the CPF Housing Scheme, you can use your OA savings to buy either a new or resale HDB flat.
Particularly, many Singaporeans use their OA funds to cover a certain percentage of the downpayment. You can also use your OA savings to take out a housing loan.
Note that you can only use your OA savings up to an extent, which is a safeguard to ensure that you would still have some savings left for retirement. In other words, you still have to use cash straight out of your own pocket to cover the remaining costs.
BTO HDB Flats
If you’re purchasing a Build-to-Order (BTO) or brand new HDB flat, you can finance your flat by taking out an HDB loan or bank loan.
Choosing the former option allows you to borrow up to 85% of the total value of the flat with a fixed interest rate of 2.6%. You can pay the required 15% downpayment using your OA savings, either in part or in full.
For example, let’s say that your flat costs $350,000. Financing it through an HDB loan requires a downpayment of $52,500, which you can pay for using your OA savings entirely or a mix of OA funds and cash.
On the other hand, taking out a bank loan requires a higher downpayment percentage at 25%, 5% of which must be paid in cash.
If you qualify for HDB’s Staggered Downpayment Scheme, you can also pay for your HDB loan downpayment in two instalments.
Under this scheme, you can pay the first 5% of the downpayment once you sign the Agreement for Lease, which normally takes place in four months after you’ve booked your flat.
You can pay the remaining 10% balance once you collect your keys to your flat. The average construction time of a BTO project takes about four to five years on average.
As for the remaining balance, you can also use your CPF account to pay for housing loan payments. Note that you have to submit a CPF withdrawal application for automatic monthly payments.
Resale HDB Flats
When it comes to financing, the conditions in purchasing a resale HDB flat don’t differ much from BTO flats.
If you’re taking out an HDB housing loan, the downpayment amount remains the same at 15%. The Loan-to-Value (LTV) limit, which is the maximum amount that you can borrow from HDB, is also at 85%.
The main difference between resale and BTO flats lies in the limits of using your OA savings. Keep in mind that HDB loan repayments are subject to two types of limits: Valuation Limit (VL) and Withdrawal Limit (WL).
When talking about valuation limits, you should know two things: the market value of your property at the time of purchase and the price you paid for your property.
Let’s say that you paid $400,000 for your property when its market value is only $350,000 at the time of purchase. In this case, the VL will be $350,000.
On the other hand, the WL is 120% of the VL. In this case, the WL will be $420,000, which is the maximum amount that you can use your CPF to pay for your property.
Once you hit the WL, you must cash or savings outside of your OA to pay for remaining mortgage payments.
Here’s a quick comparison of how VL and WL applies to you:
| Type of HDB Flat | Valuation Limit | Withdrawal Limit |
|---|---|---|
| New/BTO Flat (Through HDB loan) | No Limit | No Limit |
| Resale Flat (Through HDB loan) | Limit Applies | Limit Doesn’t Apply |
| New/Resale Flat (Through bank loan) | Limit Applies | Limit Applies |
Whether you’re buying a new or resale flat, there will be no limit to the amount of CPF savings you can use as long as the lease covers the youngest owner until 95 years old. Furthermore, the VL applies to cover the remaining balance of resale flats with shorter leases.
If you’re under 55 years old, keep in mind that the WL will only apply as long as you’ve reached the Basic Retirement Sum (BRS) in your OA and Special Account (SA), which is currently at $96,000.
Apart from the downpayment and monthly repayments, you can also use your CPF savings to pay for stamp duty, legal costs, survey fees, and other related costs.
Purchasing a Private Property
Apart from HDB flats, you can also use your OA to purchase a private residential property, including private condominiums, executive condominiums, and landed properties. You can also use your OA savings to take out a bank loan.
The LTV when taking out a housing loan is at 75% of the property price or valuation, whichever is lower. This means that the remaining 25% balance would serve as the downpayment.
The most important thing to remember here is that you must settle 5% of your downpayment in cash. The remaining 20% can be paid using your CPF savings entirely or partly, or a mixture of cash and CPF funds.
For example, say that your property costs $350,000. With a total downpayment amounting to $87,500, you must pay $17,500 in cash. The remaining $70,000 downpayment balance can be paid using your OA savings.
Take note that you’re not allowed to use your CPF funds to purchase a private property with a remaining lease of 20 years or less. Otherwise, both the VL and WL will apply if the lease covers the youngest owner until 95 years old.
In other words, you can use your CPF savings to cover mortgage repayments until you hit the VL. Take note that this limit applies if you’re unable to set aside the BRS.
But what about the WL, you ask?
In order to stretch your CPF usage up to the WL, be sure to set aside the amount for your BRS in your OA and SA, which is currently at $96,000. Note that this applies to individuals aged 55 years old and below.
For those above 55 years old, you must meet the BRS in your Retirement Account, OA, and SA. Once you’ve reached the WL, you must pay for the balance with cash or through your personal savings account.
Just like HDB flats, you may also use your OA to pay for your private property’s stamp duty, legal costs, survey fees, and other related costs. You can ask a lawyer to handle these requirements on your behalf.
Building a Private Property
Finally, you can also use your CPF account to pay for a housing loan taken out to construct a private residential (landed) property.
Important to note that your CPF account can’t directly pay for the purchase of land, as well as construction costs. Furthermore, you can’t use your CPF savings to pay for renovation, repairs, and other home improvement costs.
Unless you’re planning to pay for everything using your own funds right off the bat, your only option would be to take out a construction loan. You can also use your CPF savings to pay for a loan intended to purchase the land in which you plan to build your property.
In terms of the limit, there are two things to keep in mind here.
First, the VL applies to those who don’t exactly meet the BRS yet. To get the valuation of your property, you must obtain a valuation report prepared by a licensed valuer.
The VL applies to all loans used in the construction of your house, including the loan used to purchase the land, if applicable.
Second, you must have sufficient savings to cover your BRS first before being allowed to use your CPF savings for a construction loan. This condition applies to those who already own another residential property.
Of course, you can also use your CPF funds to pay for stamp duty, legal costs, survey fees, and other related costs incurred in the construction of your private property.
Take note that CPF payment for stamp duties and other legal costs follows a reimbursement scheme. This means that you must pay for these costs using your own money first before CPF can reimburse you.
The reimbursement scheme also applies to legal costs when purchasing an HDB flat or a private property.