The moment you see the house of your dreams, it might feel tempting to purchase it immediately. But buying a home isn’t like buying a toy from a supermarket. It involves a lot of planning before you finally move in. You must first learn the financial prerequisites of buying a house to prepare you for your life’s most significant investment.
Knowing this information well in advance would give you time to settle your finances. Stacked, an online platform best known for its property reviews and real estate analysis points out four financial prerequisites you need to keep in mind while buying your dream home.
1. Sufficient downpayment
Try to set aside a sizeable liquid capital for your home’s downpayment. The bank may soon seize your dream house if you can’t make timely repayments. Remember that paying a considerable downpayment means getting a lower monthly amortization rate.
Some people go on to spend their life’s savings on the downpayment because it reduces the burden of monthly repayment. And by lowering your monthly repayment amount, you also decrease the interest you pay over time.
2. Acceptable credit score
It’s rare to find someone who can buy a new house without taking out a loan. Most people pay a hefty downpayment and take out a loan to meet the rest of the repayment amount. But before you take out the loan, the bank will check your TDSR (Total Debt Servicing Ratio) score. You will only get a loan if you have an acceptable TDSR.
Stacked lists some of the factors that the banks usually consider, including paying your bills late, maxing out your credit card, or not repaying other loans on time. A poor credit score doesn’t help you acquire a loan. Your TDSR restricts your total loan amount to 60% of your monthly income. This means if you earn $10,000 a month, then your loan repayment amount cannot exceed $6,000 per month.
3. Affordable interest rate
When you’re taking out a home loan in Singapore, you’ll come across these three options: Board Rate, Fixed Deposit, and SIBOR. These are the most popular home loans in Singapore, but what’s the difference? Almost nothing, apart from their interest rates. But how do you decide which home loan is ideal for you? Stacked experts suggest you look for features like free repricing and lock-ins. Additionally, you should also compare the total amount of interest beyond the first few years so that you can decide your down payment amount.
4. Debt-to-income ratio
You finally find your dream home in Singapore but its minimum down payment is way higher than you had expected. This is where you need to determine your loan-to-value ratio to figure out how much you can borrow from the bank. Loan-to-value ratio is the amount you can borrow compared to the value of your home. In Singapore, banks grant a maximum of 75% LTV ratio. This means you can borrow $375,000 if the price of the house is $500,000.
Buying a home is a dream come true for many. But you need to overcome the above financial obstacles to fulfill that dream. Keep these factors in mind to ensure that your home-buying process goes smoothly. You can also check out the Instagram and Facebook pages of Stacked Homes to help you make informed buying decisions by learning more about Singapore’s real estate market.
(Syndicated press content is neither written, edited or endorsed by ED Times)