In today’s market context, being a DIY HDB buyer or seller is on a rising trend. In 2018, HDB implemented the HDB resale portal and the process of selling and buying resale HDBs are made so much more easier for sellers and buyers to perform resale HDB procedures themselves.
With the internet, online portals and forums, the process of sourcing for their dream home and information on resale HDB procedures are made so easily available. Many buyers now prefer to engage in the transaction themselves and save on the commission to agents.
However, DIY HDB buyers with existing flats may still prefer to engage an agent to represent their sales, due to limited resources, but yet prefers to DIY for the purchase themselves so as to, likewise, save on their cost on commission.
DIY HDB Buyer With Existing Flat: Is It As Straightforward As It Seems?
It may be the case for first time buyers, but if you are planning a HDB upgrading or downsizing from your existing flat, it may not be so simple. I have recently encountered a DIY HDB buyer planning to upgrade from her current flat but ended up backing out from the deal after an assessment with her. This incident arise to the writing of this article where we will be covering some of the common misconceptions that a DIY HDB buyer with an existing flat may have.
You may be interested: HDB Resale Process & Timeline – Simplified for Resale HDB Buyers & Sellers
Misconception #1: The “profit” of my existing is the Sales Price Minus Purchase Price
Without proper guidance, existing flat owners tend to think that their “profit” of the current flat is the difference of their sales price and their purchase price, and that the “profit” can be used to offset their next HDB purchase.
This may lead to owners thinking they have excessive funds for their purchase.
Our suggestion: Understand the proper way of calculating your sales proceeds and know how much funds are available for your next purchase. You can also use HDB Sales Proceeds Calculator.
You may be interested in: Guide to Calculate Property Sales Proceeds (CASH Proceeds)
Misconception #2: I have 6 months to Sell My Existing Flat after My Purchase
This is often thought to be true by many DIY HDB Buyers who have an existing flat. But this is only true if you are financially capable to complete the purchase, before selling your existing flat. By being financially capable, what I mean here is that you have sufficient means including mortgage loans, cash on hand, HDB grants as well as CPF monies already available in your CPF Ordinary account for the purchase. For this instance, you DO NOT require any funds (CPF or Cash Proceeds) from your existing flat.
If you require the funds from your existing flat, you are NOT able to complete your purchase first, needless to say, sell your existing flat within 6 months from the completion of the purchase.
Our suggestion: You have to sell your existing flat concurrently with your purchase. Some options you can explore will be using HDB Enhanced Contra Facility, Bridging Loans From Financial Institutes or otherwise Temporary Extension Of Stay upon Selling your flat.
Misconception #3: I only need to do my loan assessment after I have found a unit
Not only limited to DIY buyers with existing flats, all buyers should check on their mortgage loan threshold before abruptly jumping into any purchase, or even start viewing.
With the loan amount and monthly repayment amount on the table, you can then, work out your financing comfort as well as determining budgets and “bullets” to the next purchase, so as to avoid disappointment or go on a wild goose chase.
At times, unprepared buyers may lose their deposit when their loan amount is insufficient or have their dream home sold while waiting for the loan assessment after they found a house they like.
If you are contemplating to take up a 2nd HDB loan, be aware that the loan amount will be reduced using the CPF refund and up to 50% of the cash proceeds from the disposal of the existing or last-owned HDB flat. HDB buyers can keep the greater of $25,000 or 50% of the cash proceeds (including the cash deposit received)
Our suggestion: Prepare your loan assessment with either HDB or financial institutions first, prior to anything else. Also read up of rules and regulation if this is a 2nd HDB Concessionary Loan.
If you don’t find it a hassle, you may want to do a loan assessment with both HDB (if eligible) AND banks first so that you can do a comparison for both. I.e Cash Proceeds after selling your flat when taking a bank loan vs a 2nd HDB loan.
Misconception #4: I want a WIN-WIN situation for my sales and purchase
Selling high and buying a desired home at low. The perfect scenario for every sellers and buyers. But when you are transiting from an existing flat to your next flat directly, this might seldom be the case due to the limited time you must adhere to, regardless if you purchased first or sell first, unless otherwise, you have another place to stay during transition or have sufficient funds to complete your purchase first and to sell your flat within the 6 months stipulated time (6 months is definitely sufficient to achieve an optimal selling price for your existing flat).
For example, you may be very particular about your purchase and must have all the Fengshui factors checked before you can proceed to purchase. At the same time, you require to use the funds from your existing flat. Nonetheless, you decided to only sell your existing flat after your have found your perfect home. When you finally found your desired home and committed to the purchase, then you might compromise your sales in terms of price so as to meet the timeline for your purchase.
If you choose to sell your place first at your desired price before committing to the purchase, the flat may not be available already and hence put you into another deadlock to compromise your purchase expectation to meet the sales’ timeline.
But of course, there are also situations when owners are extremely lucky to sell their existing flat at a desired price and at the same time purchase their “perfect” home.
Our suggestion: Manage and weigh your priority as to which is more important to you, a desired home or a desired selling price and work on it first. Be mentally ready to compromise the less prioritised transaction. Take it as a bonus, if you are able to achieve both a desired home as well as a desired selling price.
Misconception #5: I can use all my refunded CPF for my next purchase.
To determine if this is true, a well prepared financial calculation is crucial. In the event of a deficit sales, you may not be able to use all your CPF funds from your existing flat as there may be a shortfall in the CPF refund back to your CPF Ordinary Account upon the sales of your existing flat.
If you have previously appealed to use CPF monies from your Special Account (due to circumstances), these funds cannot be re-used as well.
For owners whom have reached the golden age of 55 years old, CPF monies may be locked into your Retirement Account and cannot be used as well.
Our suggestion: Ensure that your financial calculations are precise and at the same time do a check on how much CPF monies are allowed to be used in the next property.
With the convenience of technology, you can now easily log on to CPF website using your singpass to check the details. When in doubt regarding your CPF, it never hurts to either call CPF board or visit them at their branches to clarify.
All the above mentioned misconception occurs in real life scenarios and I hope this article may serve to be of help to some DIY HDB buyers with existing flats whom are less savvy with the process of selling and buying resale HDBs. Do not haphazardly jump into action before working out the figures and timeline.
If you require any assistance or advices in planning from us, just drop us a message for a free 45 minutes non- obligatory consultation.