A Guide To Buying House With CPF

Are you wondering if using your CPF savings to buy a home or investment properties is an option? To answer this question, yes it is, under the CPF housing scheme [1]. However, it is subject to limits and regulations.

With the right information, you can plan your finances better and invest wisely based on things like cash you can get from your CPF, your household income, home loan tenure and amount, among others. Here are the things you need to keep in mind if you plan to use savings in your CPF for housing investment.

The Housing scheme can be classified into two:

a) Public Housing Scheme

b) Private Properties Scheme

Eligibility For CPF Public Housing Scheme 

Under the Public Housing Scheme, Singaporeans are allowed to buy either a new or resale Housing Development Board (HDB) flats with their CPF Ordinary Account (OA) money.

Eligibility to use CPF savings to pay for an HDB flat depends on a number of factors:

• The flat must have at least 20 years left on the lease
• The remaining lease should cover the youngest buyer until age 95
• Your age plus the remaining lease should be at least 95 years old

Eligibility For CPF Private Property Scheme (PPS)

The Private Properties Scheme allows building or buying private property in Singapore, either for occupation or investment, with funds in the OA.

However, there are conditions set by the CPF PPS on members who can use their CPF money to buy or build private property.

• You can only pay using CPF money if the property you are buying is in Singapore. And it should have a remaining lease of at least 30 years.
• If you are buying a private property Singapore whose lease is less than 60 years, your age plus the remaining lease should add up to at least 80 years.
• Funds from CPF cannot buy house or any private house for an undischarged bankrupt

5 Ways You Can Use Your CPF To Purchase Your Flat

It is possible to buy a new or resale flat if the lease that is remaining on the flat is more than twenty years by using one of these methods.

1. Payment For Purchase Of Flat

You can use of CPF monies to pay for the balance purchase price that the housing loan does not cover. The money is paid directly to the seller or property developer.

You do not have to use up all your money in the OA to cover the purchase price. Reserve up to $20,000, which can act as your safety net in case something happens that makes you incapable of paying back your home loan.

2. Settling Your Down Payment

You can use your CPF savings to settle your down payment in one of the following scenarios. Note that the amount will depend on the types of property and the kind of loan. And you might be required to pay a part in cash:

• If you are using an HDB loan to buy a flat, you are expected to pay a 10% down payment, which you can pay fully with money from your OA.
• When using a bank loan to buy a flat, you are required to pay a 25% down payment. At least 5% should be in cash and you can pay 20% from your account.
• For a private property being financed with a bank loan, you are expected to pay a 25% deposit, out of which 5% should be in cash and the rest can be financed with monies from your OA.
• If you are buying an HDB resale flat or a private resale property, you are required to pay in cash.

3. Repayment Of Housing Loan 

You can use your CPF OA money to repay for the loan taken to:

• Purchase land to construct a private property
• Construct a private property
• Buy an HDB flat or a private property

You are probably wondering how to use CPF to pay for housing loan repayment after having drained your account during the initial stages of making your purchase. But the contributions your employer sends to your account every month can offset the loan instalments of either a bank or CPF housing loan.

4. Home Protection Scheme Fees 

You can pay for your hdb Home Protection Scheme (HPS) annual fees using CPF savings. HPS is a mortgage reducing insurance that is compulsory to HDB home buyers using CPF OA savings to repay their HDB loans. The member is insured until they turn 65 or until they make HDB CPF payment of their loan in full, whichever comes earlier.

HDB home insurance is meant to protect the CPF home owners from losing their flat in the event of death, terminal illness, or permanent disability that occurs before age 65. It does not apply to those buying Executive Condominiums (EC) or private properties.

5. Miscellaneous Costs

Stamp duties such as Buyers Stamp Duty (BSD) and Additional Buyer’s Stamp Duty (ABSD) can be paid from your account. Unless the property is under construction, you have to pay the taxes from your pockets first and later get a reimbursement from your CPF account.

You can also use CPF OA savings to pay for other costs, such as legal fees, survey fees, flat upgrading, and other costs incurred during the purchase of the property.  Note that using your CPF to pay for legal fees is not always possible with some firms.

How Much Of Your CPF Can Be Used To Purchase Your Flat

The primary purpose of CPF savings is to secure your retirement. And to achieve this, the government of Singapore has put in place measures to limit the CPF usage of members. Two important limits could affect the maximum amount of CPF you can use for your property purchase.

Valuation Limit (VL)

The valuation limit can either be the purchase price or the market valuation of the property at the time of the purchase, whichever is lower. For example, if the purchase price of the property is $400,000 and its market value is $480,000, it means that the valuation limit will be the purchase price of $400,000, which is lower.

Once the amount you have used to pay for your property from CPF savings reaches the valuation limit, you cannot use any more of the savings to clear your outstanding mortgage until you have set aside half of your current Basic Retirement Sum (BRS) in your CPF accounts.

For those under 55 years, their CPF minimum sum can be met with money in their ordinary and special account (SA). Those above 55 years can use savings in their OA, SA, and retirement account (RA) to meet their CPF minimum sum.

Property owners (for HDB flats) who are new and financed their house with an HDB concessionary loan are exempted from the valuation limit.

Withdrawal Limit (WL)

The CPF housing withdrawal limit (WL) refers to the maximum amount of CPF savings allowed for a particular property. It is set at the cap of 120% of the valuation limit. It is important to keep track of WL for long term planning. But you can only withdraw the additional 20% after you have set aside half of your current Basic Retirement Sum.

Once you reach the CPF withdrawal limit, you have to find another way to pay for the remaining housing loan repayments, such as using cash on hand. So, plan your finances with this fact in mind. The withdrawal limit, however, does not apply to owners who have financed a new or resale HDB flat with an HDB concessionary loan.

The limit to how much of your CPF savings you can use will also depend on the type of property and the kind of loan used.

1. When acquiring a new HDB flat with a CPF HDB loan, you are allowed to use your entire account balance to repay the CPF loan amount.
2. When using an HDB loan to acquire a resale flat, the valuation limit will apply where the lease covers the youngest owner to age 95. But if it does not cover the youngest owner to age 95, a prorated valuation limit will apply.
3. In case you are making use of a bank loan to acquire a flat or private property, and the lease covers the youngest owner to age 95, both the VL and the WL will apply. If the lease does not cover the youngest owner to age 95, prorated amounts of the withdrawal and valuation limits will apply.

Note that once you sell the property, you will be required to refund the amount of CPF used to pay for your property and accrued interest you would have got from the savings if you had not used the money. It is computed based on the applicable interest rate on OA savings. The monies should be deposited in the CPF OA. The purpose of refunding the CPF savings used is to build a reliable nest egg that can meet your retirement needs.

However, if the sale amount is lower than the money withdrawn and interest, you do not need to cover the difference.

Conclusion

If you are considering using your CPF to buy your dream home, invest in additional flats, or other private property investments, it is possible and many citizens use it.

The government allows Singaporeans to make loan repayments for investment property purchase or withdraw a lump sum to cover the cost of property purchase not met by bank loans. Singaporeans can also cover things like their downpayment and cost of insurance premiums using cash from their OA. Administrative costs, for example, legal fees, are also allowed.

But there is a limit to how much CPF funds you can pay with. The board has put in restrictions to ensure that you still have enough money left for retirement purposes.

In addition, you can apply by submitting an application form requesting the usage of the cash in your account to meet the cost of the home purchase, and a report containing information on the value of the property. Once you get approval, your lawyer will complete the legal documentation with the Board’s lawyer. You can then pay any cash downpayment needed and the balance of the cost of the property having put into consideration the sums from the loan amount and cash from your CPF. Once you complete these steps, the payments will be released by the board.