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Is it better to sell your home first before buying another?

10 Aug 2021 | 8 minutes read

When it comes to upgrading a property, many home sellers are faced with this decision, “Is it better to sell my home first, or buy first then worry about selling after?” 

Well, the answer to this “chicken and egg” question depends on various factors and your unique situation. However, in many cases, it can be safely said that the better option is to sell your home first before buying another. 

Here are 3 reasons why you should sell your home first before buying another.

1. You can pay off your outstanding home loanWhen upgrading, most homeowners have an outstanding home loan, and selling your old home first can help to pay off the outstanding amount. 

Let’s say your current property is valued at $500,000 and you still have an outstanding loan of $150,000 on your current home. You then list your home on the market and manage to sell at a price slightly lower than valued, at $450,000.

This means your net proceeds will be $300,000 after paying off your existing home loan. You can then use the funds to reimburse their CPF Ordinary Account (OA) and also fund the down payment on their next home.

Therefore, by selling your existing property first, you can gauge how much you can afford for your next property purchase, and lessen the uncertainties on your financial position.

2. No Additional Buyer’s Stamp Duty (ABSD), or ABSD refund to worry about.

Additional Buyer’s Stamp Duty

If you own more than one property at once, you will have to pay the ABSD tax levied on your second property and so on, within two weeks of signing the sale and purchase agreement.

The amount of ABSD payable depends on 3 factors:

  • The purchase price of the property
  • The market value of the property

Whichever of the two is higher, and lastly;

  • The residency status of the buyer
Residency Status - If you are a: ABSD Tax Payable
SG citizen purchasing 1st residential property 0%
SG citizen purchasing 2nd residential property 12%
SG citizen purchasing 3rd and subsequent residential property 15%
PR purchasing 1st residential property 5%
PR purchasing 2nd and subsequent residential property 15%
Foreigner purchasing 1st and subsequent residential property 20%

So for instance, if you are a Singapore citizen purchasing your second residential property, you will be subjected to 12% ABSD.

Let’s say the property you are purchasing is valued at $1.2 million, but the selling price is $1.25 million. By taking the higher value of $1.25 million, the ABSD you will have to pay is:

$1,250,000 X 12% = $150,000

Do keep in mind again that this sum is payable within two weeks of signing the sale and purchase agreement of your second property. Therefore, by selling your property first, you eliminate the need to pay ABSD entirely.

3. No further limitations on Loan-To-Value (LTV) ratio and CPF withdrawals

LTV ratio

LTV ratio refers to the housing loan you are allowed to take as a percentage of the property’s valuation. Meaning if you intend to sell your property before purchasing a new one, you can be eligible to take up to a 75% bank loan of the property’s value.

However, if you’re going to hold two properties at once, you are only eligible to get a maximum of 45% LTV ratio on your second. The other 55% will be a downpayment through 2 channels:

  • Hard cash of at least 5% of the property price to service to loan
  • CPF Ordinary Account funds for the remainder of property price

So if we use the earlier example of the $1.2 million value property, you will need to do a down payment of:

$1,200,000 X 55% = $660,000

Do keep in mind that this amount can be even higher, if the bank chooses to lend you less.

Maximum CPF withdrawal limits

Another benefit to selling your property first is the maximum limit you can reach on your CPF withdrawal. 

Your CPF OA funds can be used to pay for up to 120% of the value of your property. However, if you hold two properties at once, your CPF withdrawal limit will be capped at 100% of that value.

This should be factored into your consideration since the LTV ratio will also be decreased on your second property.

To sum it up

Upgrading your property is another huge financial commitment, on top of selling your current one. This is why for most, selling your property first before buying another allows you to get greater clarity on your financial position. 

If you’re thinking about making the transition to upgrade your home soon, remember these pointers below.

On home loans

  • The proceeds from a home sale can assist you in paying off the outstanding home loan

On ABSD

  • The need to pay ABSD on your second property is eliminated should you choose to sell your property first, before buying another.

On LTV

  • Selling your home first allows you to take up to 75% bank loan on your next property purchase, as opposed to a 45% LTV if you are already holding on to a property.

These benefits apply to a large segment of the market. However, it’s important to note that for any property matters, your unique factors and situations take precedence over our advice.

Last updated on 10 Aug 2021

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