Don’t count your chickens before they hatch. Selling your largest, most expensive asset is an effective way to get rich with cash – but there are many costs involved in any resale transaction.
Earning a small fortune from your real estate transaction is usually the ideal scenario for those looking to sell their HDB apartment.
It is tempting to use this enormous inflow of money wisely, e.g. B. Buy a bigger house, get a foundation plan and / or invest in stocks.
The reality, however, is that most of what you take in from the sale will have to be used to fund the money you owed on your recently sold property.
As a result, what you have left may not be enough to help you purchase your next home and meet your original financial goals.
Understanding where our money goes once you get the proceeds from the sale is important because you have a clearer picture of how much you will pocket at the end of the day.
This also helps in calculating your budget for your next property purchase.
What are the hidden costs of selling your HDB apartment?
First of all, it is important to plan these necessary payments:
1. Remaining home loan
If you let go of your current home, you will have to pay back your outstanding mortgage. Depending on how long you’ve been servicing your loan, this can take a sizable portion of your sales proceeds.
2. HDB resale tax
You may have to pay an HDB resale tax when you sell your home. The levy applies if your current home is subsidized (e.g. BTOs) and you intend to purchase an Executive Condominium (EC) direct from a developer or purchase another subsidized home.
ALSO READ: Jumbo HDB Apartments: Are They Worth The Price You Pay?
Resale Taxes
Flat type | Resale Taxes |
two room apartment | S $ 15,000 |
Three-room apartment | S $ 30,000 |
Four-room apartment | S $ 40,000 |
Five-room apartment | S $ 45,000 |
Executive apartment | S $ 50,000 |
Executive condominium | S $ 55,000 |
3. Real estate agent commission fees
Your real estate agent is tasked with marketing and closing the deal on your behalf. Of course, they have to be paid for their services. Typically, the market price for an agent will set you back one to two percent of the transaction price.
4. Legal fees
The appointment of HDB to act for you in the legal process ensures that your legal fees remain extremely affordable. For example, if you wanted to sell your HDB four bedroom apartment for $ 500,000, HDB’s Legal Services Facility calculated that your total legal costs payable would add up to $ 290.
Don’t forget to take these additional “costs” into account.
1. Amount from your CPF Ordinary Account (OA)
Anything taken from your OA must return to your OA. In fact, the total amount is slightly higher than the amount originally borrowed as you would need to factor in the accrued interest.
Accrued interest is the amount your OA would have accumulated if the compound interest money had remained untouched.
Amount to be returned to CPF OA = principal + interest accrued
2. CPF housing allowances used (if any)
Proximity Housing Grant, Enhanced Housing Grant – these grants are unfortunately not just free money. Do you remember the relief you felt when your apartment got a lot cheaper when the grants came in?
Well, the reality, in order to enjoy the cushioning effects of grants, is that you would have to return them to your CPF OA – not to mention the accrued interest on that amount.
If the grant amount is more than $ 30,000, a portion of the grant will be transferred to your retirement, special, and / or medisave account.
Amount to be returned to CPF = total amount of CPF grant used + interest accrued
ALSO READ: 6 Tips To Maximize Your Profits When Selling Your HDB Apartment
Case Study: How Much Cash Can You Take Home?
For example, let’s say you are launching your 5 bedroom HDB apartment. The sale price is negotiated up to S $ 500,000. The total down payment was S $ 50,000 (10 percent of the purchase price).
Here is a breakdown of the estimated sales proceeds that you will receive in cash:
Selling price | $ 500,000 |
Home Loan Amount Remaining | ($ 200,000) |
HDB resale tax | ($ 45,000) |
Real estate agent commission fees | ($ 10,000) |
Legal fees (HDB) | ($ 301) |
CPF OA amount used | ($ 25,000 + $ 100,000 = $ 125,000) |
CPF OA accrued interest (2.5 percent) | ($ 21,875) |
CPF grants used | ($ 25,000) |
CPF pays accrued interest (2.5 percent) | ($ 4,375) |
Bank balance | $ 68,449 |
* These numbers are rough estimates
Finally
With the exception of those with million dollar homes, sellers can make the mistake of overestimating their cash proceeds without paying enough attention to what really goes into a resale transaction.
It is important to be careful here and not only know how much you have left, but also how much you can afford on home loan repayments when you have bought the next home.
To keep up with repayments and avoid overloading your finances with a home that is beyond your means, always do the cost breakdown (as above) before putting the sale sign on your door.
This article was first published on SingSaver.com.sg.