If you are a young adult in your 20s, chances are, you might already be thinking of buying your first home. But property prices have continued to rise in recent years, and are nearing historic highs in 2021.
This, coupled with the fall in median nominal income for Singaporeans and PRs due to the COVID-19 pandemic, has made it even more challenging for many to comfortably afford their dream homes as a newly minted adult who’s only been working a few years.
The challenge of being able to buy a first home early is further exacerbated by the anxieties that about money matters. In our PropertyGuru Consumer Sentiment Study H1 2021, we found that close to half of the Millennials surveyed cited not having enough savings as the top barrier to owning their own homes, and they tend to be unaware of the mechanics of home loan financing, such as being able to refinance their homes.
So, is it really possible to purchase your first property before you hit 25?
How Feasible Is It to Purchase a Home before 25?
Of course, the most affordable route is to buy an HDB flat. Buying a BTO flat with an HDB loan is the most common ‘strategy’ as BTO flats are subsidised and HDB loans allow you to pay much less upfront. The immediate financial commitment is low because the bulk of payments only happen years later, when you collect your keys. You would have had more time to save up by then.
Related article: Can You Get A Home Loan While Studying or Serving NS?
But these days, BTO flats are facing construction delays, resulting in longer waiting times of five to seven years (instead of the ‘usual’ three to four years). Even if you book a home at age 25, you’re only expected to ‘receive’ the property when you’re 30 years old or older!
For many, this is not ideal. So, what other choices do you have?
Well, you can look into private property, but affording one under age 25 is quite a task. Even the cheapest studio units would set you back by at least $600,000, and these aren’t really suitable if you’re hoping to start a family. If you’re hoping for at least a 2-bedder, be prepared to pay closer to a million.
Plus, you’d have to fork out at least 25% of the price as the downpayment, of which at least 5% must be in cash.
To put things in perspective, for a million-dollar property, that’s $250,000 downpayment, of which at least $50,000 must be cash – that’s even harder for someone in their early twenties to manage.
The middle ground would be HDB resale flats. They’re cheaper than private properties, and still eligible for HDB loans (if the downpayment is an issue).
Related article: 6 Things We Learnt From A Couple Who Bought Their Home Before 30
Based on median resale flat prices in Q2 2021, 3-room flats cost anywhere between $280,000 to $393,000, while 4-room flats range from $406,000 to $941,000, depending on the neighbourhood and estate.
If you’re picking those in the $200,000 to $400,000 range, then prices are comparable to most BTOs and affording one by your mid-20s may not be such a stretch. However, HDB resale prices have been rising, and many sellers are now pricing their units above valuation, resulting in buyers forking out extra Cash Over Valuation (COV).
Whichever you eventually decide on, the same basic principles of saving up apply. So, let’s now take a look at some top tips for saving up for your first home in your early 20s.
5 Tips That'll Help You Afford a Home before You Hit 25
Decide on your profession early and seek a stable job
Think twice before freelancing
Don't buy a car
Put your travel plans on hold
Make sure to factor in all your other loans
1. Decide on Your Profession Early and Seek a Stable Job
We’ve all been there before. As a starry-eyed youth wanting to discover your purpose in life, there is a tendency to want to explore different opportunities to find the right career fit for you.
However, while finding the right job fit is important, keeping a stable job might be a more financially sensible option if your goal is to purchase your first home before you hit 25. Stable income means you can better plan your finances and have a more structured savings plan towards your goals. That’ll surely put you way ahead of your peers when it comes to home ownership.
2. Think Twice before Jumping into Freelance
The desire to want to freelance can be tempting, and this is especially so if you are in the arts or creative field.
There are many perks to working as a freelancer, such as being able to have the flexibility of time and strike your own work-life balance, having fewer commitments, as well as being able to determine your own salary without having to make mandatory CPF contributions.
However, having CPF contributions would actually come in handy when you are purchasing your HDB flat. You can use the funds from your CPF Ordinary Account (OA) to pay your partial or full downpayment and subsequent monthly mortgage repayments.
Not having any funds in your OA would mean having to make your initial downpayment and monthly repayments in cash! As such, it is important to make voluntary CPF contributions even as a freelancer.
Being self-employed would also result in you being offered a smaller loan amount compared to your peers. If you are freelancing, banks or the HDB will take into account a 30% ‘haircut’ of your salary when doing their calculations to assess your eligibility.
For example, let’s say that you are a freelancer earning $4,000 a month. You intend to get a HDB housing loan with a 90% LTV ratio to finance a 3-room HDB flat in Bedok that costs $290,000. In this case, you can take up a housing loan with a maximum monthly repayment amount of $840, as opposed to $1,200—determined by the Mortgage Servicing Ratio (MSR)—if you earn the same salary in a full-time job.
3. Don’t Purchase a Car Right Before You Purchase Your Flat
Purchasing a car might bring a lot of convenience to you, especially if your first job requires frequent commutes across the island.
Owning a car comes at a hefty price though. For instance, a Toyota Corolla Altis could cost about $109,888 to $110,888. On top of that, you’ll need to budget for other long-term and recurring expenses such as season parking, road tax, motor insurance and servicing.
And unless you have that 100 grand in cash, you’ll need to rely on a car loan to finance your new set of wheels. This is where it gets tricky.
Getting a car loan could contribute significantly to your Total Debt Servicing Ratio (TDSR). This could in turn prevent you from borrowing as much you need for your home loan. If you have no other outstanding debts, based on the maximum TDSR, you can use up to 60% of your monthly income to pay for your monthly mortgage repayments (for private properties only; for HDB flats, the Mortgage Servicing Ratio of 30% applies).
As such, unless it is absolutely necessary, it is best not to purchase a car before making your property purchase. Alternatively, if you really have to, you can consider purchasing a secondhand car which you can pay off more easily.
4. Put Travel Plans on Hold
The Government recently announced Vaccinated Travel Lanes and it may soon be a possibility to holiday in the Europe, U.S., U.K., and South Korea.
But if you are an aspiring homeowner, you may want to postpone your travel plans. Overseas vacations are expensive, and if you are serious about saving up to buy a home, it is actually better to put your vacation plans on hold until you’ve purchased your home, regardless of whether there is a global pandemic or not.
Pre-COVID-19, Singaporeans travelled an average of once or twice per year. To put things into perspective, taking two week-long vacations to destinations in the ASEAN region could set you back about $800 to $2,800. These might not seem substantial, but if you opt for two luxurious vacations to London or New York, you may end up spending up to $15,200!
So while you could take that short vacations to a nearby countries once the border restrictions are lifted, we suggest avoiding travel to more faraway destinations if you’re serious about saving for a new home.
Rather than spend on expensive or frequent vacations, consider a staycation to ‘escape’ the daily grind! It’s better for the environment too: 5 Easy Ways to ‘Travel’ Green with the Perfect Staycation in Singapore
5. Factor Your Student Loan and Other Debts into the Equation
So far, we’ve seen that taking up a car loan can significantly contribute to your TDSR.
Apart from car loans, your TDSR might also be substantially affected by other loans which you might have taken up, and among them could be your student loans.
Now, we know that pursuing your education is nothing like buying a new car, and we can’t tell you to just not take up an education loan. So instead, if you have a student loan, just make sure you factor it into your plan when you save up for a new home.
The same way a car loan will eat up part of your TDSR quota, a student loan (and any other loan, really) may affect how much you can eventually borrow for your home loan.
Another source of debt which people tend to get into is credit card debt. Sure, having a credit card might come with perks such as being able to save money by earning rewards or getting cash rebates. However, if you do decide to get a credit card, be sure to pay your credit card bills on time and in full. If you do not, you risk wiping out part of your savings by having to pay off your credit card debt with sky-high interest rates of 24% or more.
Additionally, late credit card repayments will affect your credit rating and in the worst case, this might cause both banks and the HDB to refuse to grant you a housing loan altogether.
Good Luck with Your First Home Purchase!
We’ve seen that while it is not impossible for you to purchase your own home by the time you hit 25, it does however take discipline and determination to avoid excessive spending and get adequate savings together. So go on, follow these tips provided above, and you’ll be well on your way to securing the keys to your very first home.
If you need more guidance on financing your first property – be it working out your budget or securing a suitable home loan – PropertyGuru Finance can help. Reach out to our home loan advisors for free, transparent and honest advice and recommendations today.
Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.PropertyGuru will endeavour to update the website as needed. However, information can change without notice and we do not guarantee the accuracy of information on the website, including information provided by third parties, at any particular time.Whilst every effort has been made to ensure that the information provided is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner or your bank to take into account your particular financial situation and individual needs.PropertyGuru does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this website. Except insofar as any liability under statute cannot be excluded, PropertyGuru, its employees do not accept any liability for any error or omission on this web site or for any resulting loss or damage suffered by the recipient or any other person.
More FAQs About Budgeting and Saving Up
What House Can I Afford With My Salary?
You can work out a feasible home buying budget with our Affordability Calculator. Generally, the most affordable property in Singapore is the HDB flat.
How Much Do I Need To Earn To Afford A Condo in Singapore?
This depends on many factors, but based on our calculations, an entry-level condo may be within reach if you earn at least $5,058 per month.
Read more here: Buying A Condo in Singapore: How Much Do You Need to Earn?
What is the 50-30-20 Budget Rule?
This is a budgeting rule whereby you split you monthly income and expenses into: 50% for essentials, 30% for 'want's and 20% for savings.