Grants, loans and downpayment: Every young couple's financial guide to BTO

In Singapore, there’s a longstanding joke that we don’t propose with a “Will you marry me?”

Instead, we ask, “Will you BTO with me?”

A joint BTO application is pretty much a marriage proposal without the ring (yet). Nothing is as exhilarating as receiving that notification informing you of a successful ballot, and dreams of building a home together become more real than ever.

It can take several balloting attempts and a lot of luck to finally land on a successful attempt, and thus it is common for couples to adopt a "just-apply-first-and-think-later" mindset. One may assume that they will have more than enough runway to save for their future home when the time comes.

However, unexpected situations and the absence of a plan can be detrimental. It is not unheard of for couples to give up their ballots because they cannot afford the downpayment for their flats.

As a first-time applicant, having clarity on the flat price you can afford can make your home buying journey smoother, and more importantly, prevent financial stress from putting a strain on your relationship. Understand the various BTO grants, schemes, and housing loans, and how to best prepare your finances along your home buying journey.

Know your grants and schemes as first-time applicants

As first-time BTO applicants, you are likely to be eligible for various schemes and grants.

1) Enhanced CPF Housing Grant

The Enhanced CPF Housing Grant (EHG) offers up to $120,000 for couples, which can be used to pay for your flat, including downpayment. 

To qualify for EHG as first-time applicants, your combined incomes should not exceed $9,000. The buyer or his/her spouse must also be in continuous employment for the 12 months prior and remain working at the point of flat application.

2) Deferred Income Assessment

The Deferred Income Assessment allows you to have your income assessed closer to key collection (about 3 months before), potentially increasing your HDB loan amount, but note that this probably means a lower EHG amount.

For young couples, you may be eligible for the Deferred Income Assessment if both of you are:

• Full-time students or National Servicemen (NSF); and/ or
• Have completed full-time studies or National Service (NS) within the last 12 months before the HDB Flat Eligibility (HFE) letter application.

At least one of you must be aged 30 or below, and either one must also be a first-timer. 

3) Staggered Downpayment Scheme

Under the Staggered Downpayment Scheme, your downpayment is split into two instalments – the first at the signing of the Agreement for Lease, and the second at key collection.

It is particularly helpful for young couples who may not have sufficient cash nor CPF Ordinary Account (OA) savings to pay for the downpayment at the signing of the Agreement for Lease. You and your partner have to:

• Both be first-timer applicants, or one of you is a first-timer applicant and the other, a second-timer applicant
• Obtained a valid HFE letter on or before the younger applicant’s 30th birthday
• Booked an uncompleted 5-room or smaller flat in any of HDB’s sales exercises

This scheme makes flat purchases more accessible by allowing you to spread out your downpayment into two instalments, and we will cover more about the instalment amounts and payment timeline later in this article.

Read more: What to know about and do with CPF as a fresh graduate

BTO payment timeline: Everything from fees, downpayment to insurance

This payment timeline will tell you how much you need to pay at each stage to help you check if you have sufficient cash and OA savings.

Flat booking

Besides the $10 BTO application fee, the first payment you need to make after securing a successful queue number happens at flat booking (or what many people call the "first appointment"). You will have to pay for an option fee in cash (via NETS), and the amount depends on your flat type:

• 4-room and bigger: $2,000
• 3-room: $1,000
• 2-room Flexi: $500

Signing of Agreement for Lease

The “second appointment”, which is the signing of the Agreement for Lease, typically comes within 9 months after flat booking.

This is when you'll need to pay for your downpayment, which will be the first of the two instalments if you qualify for the Staggered Downpayment Scheme:

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You will also need to pay for stamp duty (using this calculator) and legal fees (subject to GST), calculated as such:

• First $30,000: $0.90 per $1,000
• Next $30,000: $0.72 per $1,000
• Remaining Amount: $0.60 per $1,000

Key collection

The final milestone is key collection ("third appointment"), which takes about 3-5 years after the project’s launch. During these years, create a financial plan together to keep each other disciplined and accountable to save enough for the remaining payments and renovation costs.

You'll need to pay the remaining downpayment and any shortfall amount, which is the amount that remains after deducting your EHG and loan amount from the flat price.

Other payments include survey fee, which ranges from $163.50 to $354.25 depending on your flat type, and stamp duty for Deed of Assignment, which is calculated at 0.40% of your loan amount and up to $500.

If you are using your OA savings to pay for the housing loan instalments, you have to get the Home Protection Scheme (HPS), and the premiums will depend on multiple factors such as the loan amount, age and sex of the insured person. The premiums can be calculated here.

If you are taking an HDB housing loan, you must also buy HDB fire insurance from HDB's appointed insurer. The 5-year premium costs only a few dollars, but this insurance covers only building structures, fixtures, and fittings provided by HDB. For home contents such as furniture, renovations, and personal belongings, you are encouraged to buy additional home contents insurance from any insurer of your choice.

So, how do you plan your finances for a BTO?

Get estimates of your BTO grant, loan amount, and flat price with the CPF calculator

You can get an estimate of the EHG and HDB loan amounts based on your combined incomes using the CPF calculator. It will also tell you the price of a flat that you can afford. Ultimately, the final numbers will be reflected on your HDB Flat Eligibility (HFE) letter.

For couples where one of you is a Singapore citizen and the other is a Singapore Permanent Resident (PR), you will have to pay a $10,000 premium on top of the flat price. However, it can be reclaimed later through the Citizen Top-up subsidy if the party who is a PR becomes a Singaporean, or if the both of you give birth to a child who is registered as a Singaporean.

As for those who are eligible for the Deferred Income Assessment scheme, it is still wise to estimate your future financial standing, such as using the median income figures for your industry or age bracket.

Plan for every stage of your BTO journey

Now that you have a clearer picture of the payment timeline, your planning should ensure that you have sufficient cash and OA savings for each stage – flat booking, signing of Agreement for Lease and key collection – and of course, extra to spare for rainy days.

After paying for the fees and downpayment, you will need to service your monthly mortgage, interests included. The following are two important ratios to find out if your current or future income will be sufficient to pay for your mortgage.

The mortgage servicing ratio (MSR) caps your monthly mortgage payments at 30% of your gross monthly income. This is to promote financial discipline by ensuring that applicants do not commit more than 30% of their income to housing loans. 

Similarly, the total debt servicing ratio (TDSR) seeks to ensure that total debt obligations are within manageable limits, and thus limits all monthly debt obligations to 55%. That includes your car loans, credit card debts and other loans.

Read more: 5 things to consider about debt management

Choose between an HDB housing loan or a bank housing loan

While the Loan-to-Value ratio (LTV) limits are now the same for both HDB and bank housing loans at 75%, there are other factors such as interest rates, loan terms, and flexibility to consider.

For HDB loan, the interest rate is pegged at 0.1% above the OA interest rates, and has maintained at 2.6% per annum for many years. If you wish to pay off your loan early, there is no penalty.

On the other hand, interest rates of bank loans are subject to market fluctuations. They may be more or less competitive compared to HDB's at different market conditions, and will require more effort to refinance to get the best rates. Most banks have a lock-in period, so if you refinance your bank loan with another bank within the lock-in period, it will incur a penalty.

You can choose to switch over from a HDB loan to a bank loan, but not the other way round.

Prepare for the worst case scenario

Before you set your sights on a specific project, find out the price range of the units on the HDB Flat Portal. Although higher-floor units are typically more attractive to buyers, that also means that the prices increase the higher you go. It is possible to be caught in a situation where units that are priced at a premium are not taken up due to their lack of affordability, and you may be left with little choice but to select them.

Additionally, your financial planning should account for unexpected situations that could impact your savings, such as layoffs or medical emergencies. It's also important to consider that your financial obligations are likely to increase as you age.

Frequently asked questions about BTO application

How will the latest reduction in HDB housing loan LTV limit affect me?

From October 2024, the LTV limit for BTO applicants will be reduced to 75% from 80%, which means that you can only take up loans from HDB up to 75% of your home.

The tighter LTV limit for HDB housing loans means that you will need to come up with a larger downpayment of 25% of the property value. If you're already stretching your budget, this larger upfront payment may have a significant impact on your finances.

My partner and/or I don’t have a job yet - should we apply for a BTO?

It's advisable to have a solid financial foundation before balloting. However, if you have crunched the numbers and are confident in your future earning potential, you might consider applying using the deferred income assessment scheme. This allows your income to be assessed closer to key collection, giving you time to improve your financial standing.

How will applying as one applicant and one occupier, versus two applicants impact my grants?

The EHG amount is assessed based on the incomes of all working persons in the household (all applicants and occupiers). However, only the applicant can use their share of the housing grants, which goes into their OA, to pay for the flat purchase. A core occupier who receives a share of the grants can use it when they are included as an owner, or when they apply to buy their own flat in the future.

Should we use all of our OA savings for downpayment and/or mortgage?

Using a mix of OA savings and cash will require you to balance setting aside liquid cash for emergencies and expenses that need to be paid in cash (such as renovation), while trying to benefit from OA's risk-free, guaranteed returns. Keep at least $20,000 in your OA to continue earning an extra 1% interest on that amount. This approach helps maintain financial stability and flexibility without compromising your retirement.

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Saving for your future home? Learn how Endowus' goal-based investing solutions help to grow your savings and bring you closer to your home purchase goals, or speak to our MAS-licensed advisors.