4 Must-Know but Overlooked Factors When Buying a Condo
This article (video) will help you understand the top 4 must-know but commonly overlooked factors: Income requirements, Maximum loan amount, Renovation budget, Maintenance fee and Property tax when buying a private property (condo)
Table of Content
- Why IPA is Important?
- The Devil is in the Monthly Mortgage
- How Much to Spend on Renovation?
- Monthly Maintenance & Yearly Tax
📌1. Why IPA is Important?
- You need a minimum of 5% cash to buy a condo.
- The remaining 20% can come in the form of CPF or cash. The remaining 75% from a bank loan.
- Many first-time buyers overlook the importance of In-Principle-Approval (IPA).
- An IPA from a bank will let you to know the maximum amount of loan you can take.
- You may not be able to get the maximum 75% loan allowed if you do not meet the income requirements. Hence, it is important to get the IPA right from the start.
- How much cash do you need?
- What is the property price range you can afford?
- The above questions can only be answered after an IPA is done.
📌2. The Devil is in the Monthly Mortgage
- From my experiences, the down payment is usually the easy part.
- Assume you qualify for a $1million loan (30 years Tenure, 1.5% interest rate), your monthly mortgage will be $3450
- Refer to my article, “Everything about Income Requirements or Loans for Your 1st Condo!” for details
- The commitment to pay the monthly mortgage for the next 30 years is usually what drives many young buyers away
- Buying a condo may not be for everyone.
- For singles, you will need the determination to work hard to service your loan
- For couples, you will need support from each other
- You may have to sacrifice by cutting down on unnecessary expenses
- Property is a good and stable investment and a hedge against inflation.
- Without a doubt, taking a mortgage will add some stress to your life.
- But it can also motivate you to work harder and save more.
- Your wealth will grow from 2 sources: (1) condo’s Capital Appreciation and (2) Forced Savings
- With a loan to service, you will less likely be tempted to splurge on branded watches or bags.
- These forced savings will translate into a substantial amount of money in future.
- Without the stress of servicing the mortgage, you may change jobs whenever you like.
- Now you will have to work harder and in doing so, may even get a promotion.
📌3. How Much to Spend on Renovation?
- How much you should spend on renovations will depend on how long you intend to stay in the property.
- As a general guide, try not to spend more than $100k ($50-80K is ideal).
- If you intend to sell within 3-5 years, then invest more in furniture and appliances.
- These can be removed to your next home easily.
- It is highly unlikely that you can recoup 100% of your renovation cost.
- Changes in taste happen fast. What is trendy today may be obsolete 5-10 years later.
- The more money spent on renovations mean less net profit when you sell.
📌4. Monthly Maintenance & Yearly Tax
- Other fees include monthly condo maintenance and yearly property tax.
- The monthly maintenance fee is between $300-400 for mass market condos
- This is paid quarterly in advance to the management office.
- Property tax is an annual tax levied on property ownership.
- Between 2023 and 2024, owner-occupied and non-owner-occupied rates will be raised.
- These changes will have less impact on the suburban condos.
- This change is targeted more on high end condos.
- For more details on latest property tax, check out this government site link.
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