How to Save Money for an Apartment: A Step-by-Step Saving Guide

Given Singapore's high property costs, the journey to owning your first apartment may seem daunting, especially for young adults. However, by taking those crucial first steps in early saving and disciplined planning, this guide will illuminate a clear path to achieving your homeownership aspirations, ideally before you turn 35 in Singapore's competitive real estate landscape.

Here's how to begin your ascent.

Apartment acquisition in Singapore involves significant upfront costs, primarily the down payment and various closing fees. Begin by determining the type and location of apartment you aspire to own to establish a realistic price range. With a target price in mind, you can then set a specific and achievable savings goal.

The most substantial initial outlay is often the down payment, so let's address that first.

Saving for the initial down payment

The down payment is the initial cash you provide when purchasing an apartment. The remaining amount is typically financed through a home loan or mortgage. Down payment requirements vary in Singapore depending on the property type.

To plan effectively, consider these key points:

• For HDB flats, first-time buyers generally need a minimum down payment of 20% of the purchase price.

• Private properties usually require a higher down payment, starting at 25% of the purchase price. Of this, at least 5% must be in cash, with the remainder potentially payable with CPF savings.

To determine how much to save for an apartment down payment, research average property prices in your desired location and apartment type. HDB also offers grants to assist first-time buyers:

• Additional CPF Housing Grant (AHG): This grant assists lower-income first-time families buying a flat.

• Special CPF Housing Grant (SHG): This grant is for first-time families buying a 4-room or smaller flat in non-mature estates.

Understanding both the specific down payment requirements in Singapore and how to leverage CPF effectively is crucial for planning your apartment purchase.

>> Read more: HDB BTO, SBF or a resale flat: Which should you pick

Budgeting for closing costs and other expenses

The down payment is a major expense, but remember to budget for other costs:

• Closing costs: In Singapore, these include stamp duties, legal fees, valuation fees, and administrative charges. Stamp duty for residential properties is tiered, ranging from 1% to 6% of the purchase price. Legal fees and other administrative charges also apply. Budget several thousand SGD for these combined costs.

• Moving and renovations: Factor in moving expenses, which vary based on distance and volume. If buying resale, consider potential renovation costs.

To determine how much you must save for apartment acquisition, estimate your down payment, closing costs, and moving/renovation expenses.

>> Read more: How much do you need to buy your first home in Singapore

A key goal for effective apartment saving in Singapore is to aim to save at least 20% of your income. While you don't need to eliminate all enjoyment, reducing expenses can accelerate your progress towards this target. Here are areas to examine:

• Compare electricity providers to secure the best rates.

• Relook car insurance, student loan and car loan plans. 

• Evaluate your mobile phone plan and internet subscription for potential savings.

• Reduce dining out or entertainment expenses.

• Cancel unused memberships or subscriptions.

To identify more savings opportunities, consider using budgeting apps, digital wallets and spreadsheets to track your spending for a month to understand where your money goes.

>> Read more: Best budget apps in Singapore

Direct extra income into your apartment savings before you spend it. This can include:

• Salary increases or bonuses.

• Tax refunds from IRAS.

• Ang baos (red packets) or other gift money.

• Inheritances.

To speed up your savings for an apartment, explore ways to earn extra income beyond your regular job in Singapore. This could involve freelancing on platforms like Upwork, Fiverr, or Freelancer, taking on part-time work such as tutoring or consulting, or participating in the gig economy (e.g., deliveries, ride-hailing).

Be cautious of scams promising quick riches. Always research opportunities and avoid those asking for upfront payments or personal financial details.

>> Read more: How to make extra money in Singapore

Saving becomes easier when it's automatic. Consider these methods:

• Schedule automatic transfers: Set up recurring transfers from your main bank account to your apartment savings with banks like DBS, OCBC, or UOB. Choose a frequency that suits you, such as monthly or on payday.

• Automate account contributions: Beyond regular savings, automate transfers to high-yield savings or fixed deposit accounts. This helps your savings grow consistently and potentially earn higher interest, accelerating your down payment goal.

You're diligently saving towards your apartment, so now it's time to make your money work harder by growing in an interest-bearing account. When comparing accounts, look at the effective interest rate. This indicates the actual return you'll earn on your savings over a year. A higher effective interest rate means your money grows faster.

Where should you keep your apartment savings? Here are some options:

Best accounts for apartment savings

• High-yield savings accounts: Singaporean banks offer these accounts with higher interest rates than regular ones. Examples include DBS Multiplier, OCBC 360, and UOB One, each with specific criteria for bonus interest. Compare rates and terms to find the best fit.

• Fixed deposit accounts: These offer guaranteed returns over a set period, suitable for funds you won't need immediately. Explore rates from different banks in Singapore to find the most competitive options for your savings timeline.

Evaluating investment options for apartment savings

For short-term apartment savings in Singapore, exercise caution with investments. If you choose to invest, lower-risk options like Singapore government bonds, stable Real Estate Investment Trusts (REITs), or low-volatility unit trusts may be considered.

However, for apartment savings within a few years, fixed deposits and high-yield accounts are often safer than volatile investments like stocks. Prioritise preserving and steadily growing your capital over seeking high, uncertain returns.

It's crucial to resist using your apartment savings for other purposes. To maintain discipline:

• Create a separate account: Set up a dedicated savings account solely for your apartment. This separation reinforces your commitment.

• Keep other funds separate: Don't use your retirement savings (CPF) or emergency funds for your apartment. Withdrawing from CPF impacts your long-term security, and your emergency fund is for unforeseen events, not apartment expenses.

>> Read more: How to save money in Singapore

Singapore offers various assistance schemes to ease the financial burden on first-time buyers. These include:

• Enhanced CPF Housing Grant (EHG): This grant is for eligible first-timers buying a new or resale flat. The EHG amount is tiered and depends on the average gross monthly household income.

• CPF Housing Grant for resale flats: This grant is for eligible first-timers buying resale flats.

• Proximity Housing Grant (PHG): This grant is for eligible buyers who want to live with or near their parents/married child.

• CPF usage for HDB flats: First-time buyers can utilise their CPF Ordinary Account (OA) savings for the down payment on their HDB flat and to service their monthly mortgage payments, subject to HDB's prevailing withdrawal limits.

• CPF usage for private properties: While less direct, CPF OA savings can also be used for private properties, subject to specific conditions and limits set by CPF regulations.

Leveraging these grants and understanding CPF usage rules are essential for maximising affordability.

>> Read more: When is the right time to buy a house

Remember: Consistent saving from multiple angles is key. Saving for an apartment in Singapore can be challenging, but every contribution brings you closer to your goal.

>> Read more: Best cashback credit cards in Singapore

Your CPF contributions, especially your employer’s 17% top-up, are critical to buying your first home. If you're taking out a HDB Concessionary Loan, Loan To Value (LTV) Ratio is 90% — this means that you can only borrow up to 90% of the flat’s valuation price. The remaining 10% must either be in cash or from your CPF OA.

As of 10 May 2019, the 90% LTV limit for HDB housing loans will be pro-rated based on whether the remaining lease of the unit covers the youngest buyer/owner to at least the age of 95.

If you're borrowing from a bank instead, the LTV is even lower at 75% — and an absolute minimum of 5% must be paid in cash (the remaining 20% can be paid in cash or from your CPF OA).

So if you are buying a flat that costs $300,000, and assuming that you're opting for a HDB Concessionary Loan, you must have at least $30,000 in cash for the down payment. If you haven’t accumulated this amount in your CPF, it can be painful to part with it from your bank account.

In addition, costs like the conveyancing fees (legal paperwork) can also come from your CPF. Monthly loan repayments can also come from your CPF. The alternative is to pay for all of these out of your own pocket. You can check your CPF online with your SingPass account.

An endowment plan is an insurance plan with a savings component. Besides giving you insurance coverage, an endowment plan pays out a lump sum after a given period (e.g. 15 years).

Many people refer to endowment plans as "forced savings". An endowment plan can be used to fund something specific, such as a University education, a car, or the downpayment on a home. Most endowment plans grow your money at around 3 - 5% interest, which is much higher than a bank’s fixed deposit.

Alternatively, you might consider a blue chip investment plan (BCIP), which can be bought at banks such as OCBC and POSB. The cost can be as low as $100 per month.

Rather than pick specific blue chip companies, you may want to keep it simple by just buying a Straits Times Index Fund. The returns from ST Index funds are pegged to the ST Index, and due to low management fees may earn higher returns than endowment plans.

Speak to a financial advisor or wealth manager before investing.

It is inadvisable to hoard the money in a regular bank account and wait for 10 or 15 years. Regular accounts typically have an interest rate of around 0.125%, so you will effectively “lose” money after factoring in inflation.

When you purchase a flat, the lender (be it HDB or a private bank) will take into account your Total Debt Servicing Ratio (TDSR). TDSR measures your debt obligations against your income.

If you earn $5,000 a month, for example, and you have debts totalling $2,500, you would have a TDSR of 50%.

With rare exceptions, you will not be granted a loan if the repayments would raise your TDSR above 60%. You will either have to apply for a smaller loan (which can mean not getting the house you want), or clear out your debts before trying again.

For this reason, do not buy a car just before buying a flat. The five-year car loan is expensive, and will contribute so much to your TDSR that you'll have a tough time getting a home loan.

Credit cards in Singapore can be great tools for saving money and squeezing the most value out of every dollar spent — as long as you use them right. That means making full repayment every time. If you maintain rollover debt (you don’t pay credit card bills in full), two things can happen.

The first is that all your savings and investments, be they endowment plans or fixed deposits, will be wiped out to pay the high interest on your credit card. It is almost impossible to “out-save” the credit card interest rate of 24% per annum.

Second, if you are late with credit card repayments — or have a history of only making minimum repayments — this will affect your credit rating. Both banks and HDB may choose to grant your smaller loans, or refuse to give you loans altogether. Your history with credit cards does impact your chances of buying a flat.

You may not have a choice about debt. Sometimes you will need an education loan, or a loan for family reasons, or any of the other times in life when it makes sense to consider getting a personal loan.

If this happens, you must be extremely stingy. Nitpick over details, such as administrative fees, and compare loan options extensively to get the lowest rate.