How to Pony Up for that Downpayment
Anyone looking to buy their own home must be able to afford it. It’s not just a matter of making the monthly mortgage payments, paying the utility bills and hiring maintenance workers. The biggest chunk of money involved in a property purchase is the down-payment. More often than not, a down-payment entails plunking down tens of thousands of dollars in one go. If your dream home is sitting out there waiting for you, and you aren’t flush with cash, get creative in thinking about ways that you can save for your downpayment and move ahead with your purchase!
Ask for a Gift
A popular way for younger people to get their down-payment sorted is to ask their relatives for a cash gift. This is something that could be arranged in lieu of a birthday present, or maybe as an early wedding present.
It is important to make it clear right from the start that this is a gift rather than a loan. Otherwise there could be lots of problems in the future when that relative perhaps expects the money back and you don’t have it to give to them.
Your mortgage lenders might also ask for proof of the origin of the money, so getting a letter from the person gifting it is a smart move. Overall, this is a fine way to set the switches to be able to afford to buy a house without saddling yourself with extra loans or commitments. However, it can be difficult to get the conversation going.
Get a Loan from a Family Member
If you don’t have anyone willing or able to gift you the cash you need, it could be that a loan from a family member may a good move. Before looking into this, bear in mind that the more you borrow, the more it may impact upon your ability to pay back your mortgage.
Ideally your relatives would be able to wait a while before you start to pay back the loan. That way you can get settled in and spend the cash you’ve got on the things you need right away to get organised, such as furniture and decorating. Starting off this new life phase making loan payments certainly isn’t ideal for anyone.
As with any large sum of money received, you need to make sure at the start that everything is clear in terms of a repayment schedule. A written contract between you and a relative might seem a bit over the top, but it could save you a lot of hassle later on. People can forget details over time, leading to confusion and big problems if there is no mutual written agreement.
Get an Alternative Loan
Assuming that you don’t have a family member or close friend who could lend you the money, perhaps it’s time to think about other ways to borrow the cash for your down-payment.
Not all lenders like to see people taking an alternative loan, so you will want to check with them before you proceed. However, if you can get a loan at a good rate that you can afford to pay back, then it could be just what you need.
If you are going to use a loan that carries a high interest rate, you will need a plan to pay it back quickly. Maybe you’re thinking of getting in some extra income to cover this, or perhaps your mortgage lender can offer you a special deal to give you some breathing space at the start. It is vital to understand from the very beginning how you will pay this back – in addition to making your mortgage payments.
Cut Back on Your Spending
Is it worth living a more austere life for a year or so in order to save up for a down-payment more quickly? Logic would tell you that eating out less often and buying fewer clothes just might do the trick by leaving you with more money in your account every month. It won’t be a huge amount of fun, but it could be a foundation that makes you grateful for the rest of your life.
A good way to successfully cut back on spending is to calculate at the very start how much you want to save and figure out how to achieve that. Maybe you need to save a certain amount each month in order to accrue a certain level of down-payment. By tracking your spending and your savings, you can keep your expenditures under control and stay motivated to carry on saving for as long as it takes.
This might even lend you a new impetus to lead a frugal lifestyle that can benefit you for the rest of your life. Saving money is always a great habit to get into no matter what life stage you’re in.
Use CPF Savings
In Singapore it’s possible to apply a certain amount of your CPF savings towards paying the initial amount you need to buy a home. Note that there are withdrawal limits that cap the amount you can use depending on the type of property you want to purchase.
In such a case, there is a cap in place which goes by the name of Withdrawal Limit. At the time of this writing, this cap is set at 120% of the Valuation Limit of the property being bought. However, the exact amount of CPF savings you can use will depend upon the type of purchase and whether you are over or under 55 years of age.
It is also worth bearing in mind that you can use these savings only for either a freehold property or a leasehold one with at least 30 years left on the lease. If you want to work out exactly how much you can use of your savings, you can find a handy calculator at the CPF website.
She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen).
Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).
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