Saving for Your Downpayment: Using CPF and Cash to Buy a Home

How Much Downpayment Will You Need?

Let’s start with the basics: what size downpayment is required when you buy a home in Singapore? It depends on the type of loan and property:

• HDB Loan (for HDB flats): Currently, the Loan-to-Value (LTV) limit for an HDB housing loan is 75%. That means you need to pay 25% of the flat’s price as downpayment. The good news is, for HDB loans, this entire 25% can come from your CPF Ordinary Account (OA) savings (and/or cash, if you prefer). In practice, when you book a BTO or exercise an Option for a resale flat, you might pay a small option fee first (in cash, e.g. $1,000), and the remainder of the downpayment will be settled using your CPF and cash when completing the purchase. HDB loans require a smaller cash outlay upfront compared to bank loans – essentially just the option fees and any stamp/legal fees that cannot be covered by CPF.
• Bank Loan (for HDB or private property): Banks typically lend up to 75% of the property price for your first mortgage. So, you’re looking at a 25% downpayment as well, but with an important caveat: at least 5% of the purchase price must be paid in cash. The remaining 20% can be paid using CPF OA or cash, or a combination. For example, if you buy a condo costing $800,000, the minimum cash you must fork out is $40,000 (5%), and you could use CPF for the other $160,000 (20%) if you have sufficient OA savings. If your CPF OA doesn’t have enough, you’ll have to use more cash to make up the difference. Also note, if you already have an existing home loan or if the property has a short remaining lease, the LTV might be lower (meaning you need an even larger downpayment), but for first-timers with a standard property those conditions won’t usually apply.

Beyond the downpayment itself, remember there are other upfront costs: stamp duties (payable within 14 days of signing the purchase agreement – can be paid via CPF for HDB, but for private property BSD must be cash/CPF from your pocket, not part of the loan), and legal fees (can sometimes be bundled into the loan for banks or paid via CPF for HDB). It’s wise to budget those separately so your downpayment funds remain intact for the property.

Maximizing Your CPF for the Downpayment

CPF Ordinary Account savings are a lifesaver for many homebuyers. Every month, a portion of your salary (up to 20% for younger workers, with employer contribution as well) goes into OA, which can be used for housing. To maximize your CPF for the downpayment:

• Plan early: If you know you want to buy a home in a few years, try not to use OA funds for other investments or education if possible, so that they accumulate. CPF OA earns 2.5% interest, which helps your balance grow steadily.
• Know your OA balance and withdrawal limits: Log in to your CPF account to check how much you have available. If you’re buying a resale HDB or private property, CPF will also impose a limit if the remaining lease of the property is under 95 years (the rule is complex but essentially to ensure you have some CPF left for retirement if the home’s lease might expire in your lifetime). For most young buyers picking flats with long leases, this isn’t an issue.
• Use CPF Housing Grants: These grants for HDB purchases are credited into your CPF OA. For example, if you get a $50,000 grant, that’s $50k more in CPF you can use towards the downpayment or upfront costs. Always check what grants you’re eligible for – first-timer families can get significant subsidies for BTO or resale flats. It’s “free” money that directly reduces how much of your own savings you need to use.
• Be mindful of CPF’s limits: If you’re taking an HDB loan, there’s a rule that you must set aside a certain amount in CPF (the Basic Retirement Sum) before you can use excess CPF beyond your downpayment, but first-timers usually don’t hit this scenario unless you have a lot of CPF. Also, with bank loans, you can technically use CPF for the entire 20% (after the 5% cash) and even for monthly installments, but consider leaving some buffer. One strategy is not to wipe out your CPF entirely on the downpayment – keep a few months’ worth of installments in OA as a safety net in case of income disruption.

Using CPF for downpayment is extremely helpful, but remember it’s essentially using your retirement savings. If you sell the house later, you’ll need to refund the amount used plus accrued interest to your CPF. That’s fine (it’s paying yourself back), but some people prefer to pay part of the downpayment in cash to keep more in CPF growing at 2.5%. Weigh what works for you. If cash is tight, leveraging CPF fully to ease the purchase is perfectly sensible.

Growing Your Cash Savings Faster

Besides CPF, you’ll likely need cash savings – especially to meet that 5% cash requirement or other fees. Building up a downpayment fund can seem daunting, but here are some strategies:

• Set a clear savings goal and timeline: Determine how much cash you need (e.g., $40k in 2 years) and break it down into monthly targets (about $1.7k a month in this example). This gives you a concrete plan.
• Automate your savings: Treat your downpayment like a must-pay bill. The moment your salary comes in, auto-transfer the set amount into a dedicated “home fund” savings account. What you don’t see, you won’t spend.
• Cut expenses and boost income (temporarily): While saving for a home, you might tighten the belt on discretionary spending. Maybe fewer vacations or eating out less often – remind yourself it’s for a short period towards a huge goal. Any bonuses, tax refunds, or unexpected windfalls should go straight into the home fund. If possible, find secondary income (freelancing, a part-time gig) purely for this savings goal. Every dollar counts when you’re trying to hit that target.
• Safe investments for your home fund: Since your timeframe might be a couple of years, you could use relatively safe instruments to earn a bit more on your savings than a normal bank account. For example, Singapore Savings Bonds or high-interest savings accounts can help your money grow with minimal risk. Avoid very volatile investments (like stocks) with your downpayment money unless you have a longer horizon or extra funds – you wouldn’t want a market dip to derail your home plans.
• Reduce high-interest debt: This might sound unrelated, but if you have ongoing debts (credit cards, personal loans), pay them down aggressively. Not only will that free up more of your income to save (instead of paying interest), it will also improve your TDSR situation when you apply for a mortgage.

Staying disciplined with saving is tough, but keep your eyes on the prize – literally picture the home you’re working towards. Some couples even choose to downgrade their car or hold off on buying a car to save the money for a home; others move back with parents for a year or two to save on rent. These sacrifices can accelerate your savings significantly.

Make Use of Housing Grants and Family Support

If you’re buying an HDB flat as a first-timer, do not overlook CPF housing grants as part of your downpayment plan. As mentioned, grants like the Enhanced CPF Housing Grant (EHG) for BTO/resale (income-based), Family Grant for resale flats (for couples, up to $50k), and others can be game-changers. They effectively reduce the price you pay. For example, a $400k resale flat with $50k grant means you only need to finance $350k – that’s $50k less downpayment needed. The grant money goes into your CPF and can be used at completion to pay the seller (thus lowering loan required). Check the HDB or relevant websites to see the latest grants and criteria, or ask Cashew’s advisors for the rundown, as these policies update from time to time.

Finally, don’t be shy to consider family support if it’s an option. Many first-time buyers get a leg up from their parents – whether it’s letting you live rent-free (so you can save), helping with part of the downpayment, or pledging a part of their CPF for your loan if needed. Of course, not everyone has this option, but if you do, approach it as a formal arrangement (maybe even pay them back over time). It can make a huge difference in reaching your goal sooner.

With a clear plan and smart use of resources like CPF and grants, that daunting downpayment becomes achievable. It might take a few years of effort, but when you finally hold the keys to your new home, you’ll be glad you started planning and saving early. Cashew’s tools can help you track your progress – for instance, our platform can show how different downpayment amounts affect your loan and monthly payments, giving you mini-milestones to aim for. Stay focused and good luck growing that home fund!