Know exactly where your money will be going
Everyone should fully understand what happens to our money once we sell our HDB flat, private condominium or landed property in Singapore. This is so we can prudently plan for how we can use the proceeds – whether it’s for buying another property, investing in the stock markets, starting a business or setting funds aside to pay for your children’s education.
What You Should Consider Before Selling Your Home
First of all, you should have fulfilled your 5-year MOP (Minimum Occupation Period) if you are selling an HDB flat. While you can engage a property agent slightly earlier, the transaction can only be completed after the MOP. If you’re selling a private property, you have to consider the Seller’s Stamp Duty (SSD), which applies to sellers who are offloading their property within three years of purchasing it.
Before agreeing to sell your home, you should have already considered your housing options going forward. You should also note that it may take a while, approximately two to three months, for your money from the sale of your property to come in.
In the case of selling an HDB and buying another, you can use the HDB’s Enhanced Contra Facility to reduce your cash outlay or loan requirements. If you’re purchasing a private property, you have to ensure there’s a plan in place for you to receive your sales proceeds (and have a place to stay) before paying down on your new purchase.
What Happens After I Have Sold My Home?
# 1 Pay Down Outstanding Home Loan
Your mortgage will be the first thing that gets paid down. This sum is deducted from your sales proceeds.
# 2 Refund Your CPF Ordinary Account
Downpayment: Next, you must refund the money you “borrowed” from your CPF account.
Accrued Interest on Downpayment: Apart from the principal sum used, you also need to refund accrued interest “owed” to your CPF account. This is the 2.5% interest that you would have earned if you hadn’t used the funds.
Stamp Duty and other charges paid for with your CPF: You can pay for your Stamp Duty, and other charges such as lawyer’s fees with your Ordinary Account (OA) balances when you purchase a BTO flat.
Accrued Interest on Stamp Duty and other charges: The accrued interest on this upfront payment will be taken into account.
Monthly Loan Repayment: During the five-year period you were living in your home, you were also paying down your mortgage using your CPF contributions. You need to refund this amount as well.
Accrued Interest on Monthly Loan Repayment: You also need to refund the accrued interest you owe to CPF for using these funds.
CPF Housing Grant: You will also have to refund any housing grants you received when you sell your HDB flat.
Accrued Interest on CPF Housing Grant: Of course, you also need to pay accrued interest on your housing grants.
# 3 Agent Commission
Selling your flat via an agent may mean paying between 1% and 2% of the sales price in commission.
Buying Your Next Home
Once you have sold your home, you will need to buy another home for your family to live in. If you choose to buy another subsidised flat from the government, you will have to pay a resale levy for your second flat.
As you can see, this final sum you will have in cash can be much lower than the “profit” you thought you had earned from selling your HDB flat at a higher price.
If you choose to go private or opt to buy another resale flat, you will not have to pay any resale levy. Do note that you will have to pay a minimum of 5% in cash downpayment on your private property. This would not only easily wipe out the cash in hand you have after selling your HDB flat, but also require you to put more cash down.
Of course, whether you choose to buy an HDB flat or a private property next, you can use your CPF balances, along with nearly all your CPF refunds and accrued interest paid back, to fund the purchase of your next property. So, it may not really matter how much you had to pay back in accrued interest to CPF since you can still use it to fund your next purchase.
What If You Are Above Age 55 When You Sell Your Property
At age 55, your Retirement Account is created. Your combined balances from your Ordinary Account and Special Account are used to set aside the Full Retirement Sum (FRS). If you do not have the FRS set aside, any refunds paid to your CPF Ordinary Account from the sale of your property will first go into your Retirement Account.
It is important to note that you can only use funds above the Full Retirement Sum to purchase your next property if you want to buy another flat after 55. Alternatively, you can also opt to set aside for the Basic Retirement Sum (BRS), which would also require you to pledge your property.
This may drastically affect the amount of CPF balances you have to pay for your next home purchase after 55.
You should do your sums before selling your home. Know all the costs involved and where your sales proceeds will be going, as well as how you can utilise them going forward. These are basic yet vitally important considerations to make before deciding on any decisions.
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