Many people do not know that planning for a property purchase can take up to a year or more. Without proper planning, many people are stuck after making the wrong move.
Here are some common mistakes: –
Buying a property before knowing your budget.
The biggest hurdle when purchasing a property is usually the loan. Not many people I know have a million bucks floating around. Most people fail to get this right because they assume they are able to obtain a loan.
Using the current LTV of 80% and TDSR of 60%, the income required to buy a $1m apartment ($800K loan over 30 years) is around $6K assuming no other commitments. If you have some credit cards and a car loan, this figure could easily balloon to $8K.
So what happens if you bought a new property and paid the 1% option-to-purchase (OTP) fee ($10K for a $1m property) and is unable to obtain a loan? The answer is simple: you’ll forfeit the 1% and the seller can now throw a party.
Buying a new property before selling the current one.
This is very common. What happens if you can’t sell your current property in time? You will be made to pay the additional 20% downpayment (your LTV is reduced to 60% from the original 80% you were expecting).
For those hoping to apply for an ABSD remission, sorry. It’s gone.
So why does a property purchase planning take up to a year?
That’s because if you are unable to obtain a loan (especially self-employed), it will take up to a year to get your year-end tax filings corrected. A typical loan approval-in-principal process can take up to one month. Then you’ll start selling your current property before buying a new one to avoid any of the pitfalls I mentioned above.
Happy house hunting.