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Financial Tips Before Purchasing Property

>> Monday, August 24, 2009

Despite the recession, Singapore seems to be on a property bull run. Here are some financial tips before purchasing the property:

1. Get the order of financial planning correct. Do a proper financial budgeting to determine your affordability before property hunting. Instead of squeezing out the budget after the purchase, over committing will make you a slave to the property.

  • Things to consider in your budget, (1) the monthly cash outflow that you can afford for the mortgage installment, (2) the length of the loan installment and (3) the estimated percentage of the property valuation which the bank is willing to lend you. There are various free online calculators available to assist you.
2. Understand what is Cash-Over-Valuation or COV. This amount cannot be covered under the mortgage and has to be paid in cash upfront upon purchase. Ensure you still have sufficient liquidity after paying for COV because you could end up being asset rich but cash poor, resulting in potential cash flow problems in future.
  • You must ensure that you are sufficiently insured and have emergency cash for a rainy day. A rule of thumb is to have at least 6 months to a year of your income as emergency cash. (CPF cannot be withdrawn so it is not emergency cash.)
  • For singles, if you are completely not insured or uninsurable, an emergency cash of at least 5 years is required (assuming a recovery from sickness within 5 years); For family with dependents, at least sufficient years of emergency cash until the children are financially independent, age 25 for male and age 22 for female).
3. Do not be pressured into purchasing. Both the buyer and seller’s property agents have vested interest as they earn no commission until the deal is closed. Make sure you are fully satisfied with the property, location and price before you proceed.
  • You should bring along another person like your relative or friend who can give you an independent opinion.

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