Yahoo Finance Buying a House? Here are 8 Terms You Need to Know Before You Meet Your Realtor
For many of us, buying a home might be the biggest purchase of our lives. Ideally, we want to get it right. I’m not just talking about choosing the right partner—breaking up is expensive! I’m talking about choosing the right ownership structure, understanding your mortgage payments, and getting all your life admin right for buying a house (do HFE, AIP and BSD ring a bell?).
Whether you’re buying a Build-to-Order (BTO) flat, resale flat, condo, or private property, you should go into the process well-versed in key property lingo. We know they can be confusing, but don’t let technical jargon get the better of you. Here are 8 property terms you should know before you buy your first home.
8 Terms You Must Know Before Meeting Your Property Agent
1. Approval-In-Principle (AIP) or In-Principle Approval (IPA)
No, not “India pale ale”. IPA in the context of property is far more important. In-Principle Approval (IPA) or Approval-In-Principle (AIP) is a conditional approval from a bank or financial institution stating the maximum loan amount you are eligible for, based on your financial status. It’s not a final loan approval but gives you a good idea of your budget when house hunting, so it’s a good idea to get it before you start shortlisting properties that may be over your budget.
It’s also useful because it shows sellers and property agents that you’re serious and financially ready to buy a property, reducing financial uncertainties and streamlining the house buying process.
Do not pay your option fee before getting your IPA—if you then realise you can’t get a big enough loan, you’ll lose the money you deposited since the option fee is non-refundable.
Type of property you’re buying | How to apply for an IPA |
HDB flat (BTO or resale) | Via the HDB Flat Portal when applying for your HFE letter if you’re applying with DBS, Hong Leong Finance, Maybank, OCBC, Sing Investments & Finance Limited, or UOB. |
Condo | Approach banks directly. |
Private property | Approach banks directly. |
2. Buyer’s Stamp Duty (BSD) and Additional Buyer’s Stamp Duty (ABSD)
Buyer’s Stamp Duty (BSD) is a tax you must pay when purchasing a property in Singapore. The amount is based on the property’s price or market value, whichever is higher. Since you get charged different percentages of tax at different bands of the property value (e.g. 1% for the first $180,000, 2% for the next), it can be tedious to calculate. Use our stamp duty calculator to save you the headache.
Additional Buyer’s Stamp Duty (ABSD) is an extra tax on top of BSD, applicable to Singaporeans buying a second or subsequent property, or if you are a foreigner or an entity buying any property. ABSD rates vary depending on your residency status and the number of properties you own.
Why are these duties important? When you buy a property in Singapore, you cannot avoid stamp duties. When budgeting for your home, you must also account for these as they can significantly impact your overall costs.
ALSO READ: What Is The Additional Buyer’s Stamp Duty (ABSD) “99-1 Loophole” in Singapore and Is It Illegal?
3. HFE Letter
The HDB Flat Eligibility (HFE) letter is a document issued by Singapore’s Housing and Development Board (HDB) confirming your eligibility to purchase an HDB flat. It assesses criteria like citizenship, income, and family structure. Having an HFE letter means you’ve cleared the initial checks and are eligible to proceed with buying a new or resale HDB flat.
The HFE letter tells you:
If you’re eligible to buy a new or resale flat
How much you can get in CPF housing grants
How big an HDB loan you can take
If you’re considering a bank loan instead, you can also apply for an IPA during the HFE letter application process via the HDB Flat Portal. See the first section in this article for more.
The HFE letter is only for those buying flats, so condo and private property buyers can ignore the HFE letter. For flat buyers, the HFE letter is absolutely crucial. If you’re buying a BTO flat, you need a valid HFE letter in order to apply for a flat during sales launches. If you’re looking at a resale unit, you need an HFE letter before getting your Option to Purchase (OTP) from a flat seller, and when you submit your resale application to HDB.
The HFE letter is valid for 9 months from the date it’s issued to you.
4. Loan-to-Value Limit (LTV)
This is a term that sounds like it’ll involve cheem math, but really isn’t all that complicated. The Loan-to-Value (LTV) limit is the maximum amount you can borrow from a bank or financial institution relative to the property’s value. For example, if the LTV limit is 75%, you can borrow up to 75% of the property’s value, and you must pay the remaining 25% as downpayment.
In Singapore, LTV limits are set by the Monetary Authority of Singapore (MAS) and vary based on factors like the number of existing home loans you have. If you owe more in housing loans, your LTV limit will be lower. It’s for your own good—understanding LTV limits helps you plan your finances better and ensures you can afford your dream home without ending up in bad debt.
5. Joint Tenancy vs Tenancy in Common
When buying a property with someone else, you have to decide how you want to co-own it—joint tenancy or tenancy in common.
Joint tenancy means both owners have equal shares and rights to the whole property. You and your co-owner(s) are regarded as a single legal entity. If one owner passes away, their share automatically goes to the surviving owner(s).
The joint tenancy option is great for its simplicity and straightforwardness—the right of survivorship means that if someone passes away, whoever survives owns the property. No legal fuss necessary. On the other hand, a disadvantage of this option is that it isn’t as straightforward to bequeath your share to an intended beneficiary—not the best choice for those who want to do some estate planning.
On the other hand, tenancy in common allows owners to have different shares, and each owner can bequeath their share to someone else in their will. You can even sell or mortgage the portion you own without the consent of your co-owner(s).
The tenancy in common option allows for more flexibility when it comes to managing your property share and is the ownership structure you should choose if you intend to decouple. However, it can also lead to conflict because each co-owner can do what they like to their share.
Understanding the difference between joint tenancy and tenancy in common is important for estate planning and how you want the property ownership to be managed.
6. Minimum Occupancy Period (MOP)
The Minimum Occupancy Period (MOP) is the minimum amount of time you are required to live in an HDB flat before you can sell it or rent it out. In Singapore, the MOP is usually 5 years, but is extended to 10 years for Plus and Prime flats.
During the MOP, you must physically occupy the flat, and renting out the whole unit is not allowed. The MOP ensures that public housing remains primarily for owner-occupation and helps maintain community stability. It’s a key consideration if you’re thinking of upgrading or investing in another property shortly after buying an HDB flat.
7. Option to Purchase (OTP)
The Option to Purchase (OTP) is a legal agreement between a buyer and a seller in Singapore that gives the buyer the exclusive right to purchase a property within a specified period, typically 14 days. You’re not buying the house, you’re just buying the right to buy it.
To secure this option, the buyer pays a non-refundable option fee, usually 1% of the property’s purchase price. For new HDB flats, the option fee is $500 for a 2-room, $1,000 for a 3-room, and $2,000 for a 4- or 5-room flat.
If you decide you want to proceed with the purchase, you can exercise the OTP by signing it and paying an additional deposit. This fee then becomes part of the downpayment.
On the other hand, if you change your mind about the property and decide not to proceed, the seller (or HDB, if you’re buying a BTO) keeps the option fee.
8. Total Debt Servicing Ratio (TDSR)
The Total Debt Servicing Ratio (TDSR) is a framework set by the Monetary Authority of Singapore (MAS) to ensure that borrowers do not overextend themselves financially. It limits the amount of total monthly debt repayments, including mortgages, car loans, and personal loans, to 55% or less of your gross monthly income.
The TDSR helps maintain financial stability by ensuring borrowers can manage their debt repayments comfortably. When planning to buy a property, understanding your TDSR can help you gauge how much you can borrow without exceeding this limit.
If the TDSR is starting to sound familiar, it’s because it’s complementary to the LTV limit. They both take into account your debt and keep you from taking on too large a loan. While the LTV limit is only based on your outstanding housing loans, the TDSR considers other loans too.
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About the author
Vanessa Nah is a personal finance content writer who pens articles on the ins and outs of buying property, the T&Cs of credit cards, and the ups and downs of alternative investments. She’s a researcher at heart and leaves no stone unturned when it comes to breaking down complex finance concepts and making them easy to understand for the everyday Singaporean. When Vanessa’s not debunking finance myths, you’ll find her attending dance classes, fingerpicking a guitar, or (most impawtently) fulfilling her life mission to make her one-eyed cat the most spoiled and loved kitty in the world.
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