While we spend a lot of time talking (and writing) about how to buy your first home, the discussion on how to buy your second home is more muted. Perhaps, you are upgrading from a smaller HDB flat to a larger one, you want to move closer to your parents or you are downsizing now that the kids have flown the nest. There is a multitude of reasons why your first home may not be your forever home.
However, the process of buying and selling your home can be daunting. Unlike buying your first home, you have to manage both the purchase and sale of possibly the largest asset you own. For most people, it is unlikely that you will have sufficient cash or CPF to outright purchase your second HDB flat without selling your first HDB flat.
This is where HDB Contra Facility And Enhance Contra Facility comes in helpful for those looking to buy your second HDB flat as it allows you to sell your existing HDB and buy another HDB at the same time.
When Will You Need To Use Contra Facility?
In a regular selling and buying of property, the two transactions are treated separately. Even if you are downsizing and selling a $600,000 HDB flat and buying a $400,000 resale flat, you cannot use the proceeds from your sale to offset the purchase without contra. This means that you will still have to take a loan or have sufficient cash and/or CPF for the purchase of the $400,000 flat, even if you know that you will have enough funds from the sales proceeds. If you have an existing mortgage, it is likely difficult to get a second bank loan until you have discharged the first mortgage, due to limits on the total debt servicing ratio.
Most homeowners rely on the sales proceeds of the first home to fund the purchase of their second home. This is one of the reasons why many homeowners struggle with the timing of their second home purchase: whether to sell first or buy first when it comes to their second home purchase.
What Is The HDB Contra Facility And Enhanced Contra Facility?
The HDB Contra Facility is for those who are buying a new HDB flat, while the Enhanced Contra Facility is for those who are buying a resale HDB flat. The Contra Facility and Enhanced Contra Facility allow you to sell your existing HDB flat and at the same time, buy another HDB flat using the sale proceeds and refunded CPF monies. This reduces your cash outlay, and you can also take a lower mortgage or even no mortgage if the sale proceeds are more than sufficient to cover the purchase. Essentially, it is an additional loan that makes up the shortfall in funds if you are waiting for the sales proceeds of your existing flat to cover the purchase of your next flat.
Contra Facility For New Flats
The Contra Facility is for the purchase of new HDB flats directly from HDB. As HDB is the seller of the new flat, the process is relatively straightforward. Interest will be charged for this additional loan based on the interest rate charged for your HDB housing loan, which is currently 2.6%.
To be eligible for the Contra Facility, you must be:
- Eligible for a housing loan from HDB, and are using it for the new flat purchase
- Able to cover the full purchase price of the new flat using your CPF Ordinary Account balance, cash and CPF proceeds from the sale of your current flat, and/ or the maximum loan from HDB that you are eligible for following credit assessment
- If the abovementioned funds are insufficient, you must top up the shortfall before the request for the Contra Facility can be approved.
Do note that the proceeds from the sale of your existing flat cannot be used to pay for the downpayment of the new flat. This means that you will need to have sufficient cash or CPF to pay the 10% downpayment even if you are taking the contra facility.
You may only apply for the Contra Facility when you have booked a new flat and received the invitation to collect the keys from HDB and are submitting the resale application for your existing flat. The application for contra facility should be submitted as part of the resale application.
Enhanced Contra Facility (ECF) For Resale Flats
The Enhanced Contra Facility (ECF) is for the purchase of resale HDB flats on the open market. The requirements for Enhanced Contra Facility is more complex as the buyers and sellers involved are all individuals.
Illustration of the parties involved in ECF:
|Flat A||Flat B|
Name: Mr Tan
Name: Mr Koh
Applied for ECF
Name: Mr Koh
Applied for ECF
Name: Mr Lim
The resale of Flat A must be completed before or on the same day as the completion of the resale of Flat B. Mr Koh must indicate “contra” in his resale application & addresses of the flats he is selling & buying. Mr Tan and Mr Lim need NOT indicate “contra” in their resale applications.
To be eligible to apply for the ECF:
- You must be selling your existing flat (Flat A) and buying an HDB resale flat (Flat B).
- Your buyer (of Flat A) and the seller (of Flat B) must not have applied for similar contra facilities for their flats. In the above example, Mr Tan and Mr Lim cannot apply for ECF when Mr Koh applies for ECF.
- You cannot be taking a bank loan for your existing flat (Flat A). This means that you must be either taking an HDB loan for your existing flat or have already redeemed the loan.
- You do not need to engage a private solicitor for the property transaction(s). Cases, where you may need to engage a private solicitor instead of relying on HDB’s conveyancing, may include cases where the property is part of a divorce or estate settlement.
- There is no CPF mortgage or charge on both properties (Flat A and/or Flat B).
- You cannot take a bank loan to buy the resale flat (Flat B). This means you must take an HDB loan or make full payment using cash or CPF.
- If you, as the seller of Flat A, are a Singapore Permanent Resident (SPR), you must not be an undischarged bankrupt or have any bankruptcy proceedings against you
The ECF can be used to finance the purchase of Flat B, including the insurance premiums for the CPF Home Protection Scheme. However, you can only use the cash proceeds from Flat A (after deducting deposit paid, outstanding mortgage loan, resale levy, CPF refunds and accrued interest and any sums due to HDB), after using all your existing CPF Ordinary Account (OA) balance and CPF monies refunded to your OA from the sale of Flat A. Each buyer can retain up to $20,000 in their CPF OA, the remainder will be used to pay for the purchase of Flat B, subject to CPF’s rules and regulations.
You Need To Take A HDB Loan To Qualify For Contra Facility And Enhanced Contra Facility (ECF)
While having the additional loan to tide you over as you sell and purchase your next home is undoubtedly useful, you will need to be taking an HDB loan to qualify for the Contra Facility and the ECF. For homeowners taking a bank loan or who do not wish to take on an HDB loan for their next home purchase, you may wish to consider options as such bridging loans from banks which are short-term loans with a maximum tenure of 6 months and typically range between 4% and 5%.
Regardless, buying and selling a property can be a daunting prospect and you have to manage the timelines of both transactions carefully if you wish to do both at the same time.
Check out our home loan guide for more information, or if you’d like some help in securing the best home loan package for your home, you can contact the professional home loan brokers at RedBrick for a free, non-obligatory consultation.