Home loans, part 2

TIP #1: DON'T RUSH TO SIGN

The general rule is: Don't sign anything unless you have to. Most agents will pressure you to sign a two- or three-month exclusive contract. But you can just say no. Agents may work harder knowing they are competing with others to sell your property.

TIP #2: AGENT OR AD?

As with buyers, housing agents also want sellers to pay them 2 per cent to sell a flat. You can offer less, like 1 per cent. Actually, you are not required to use an agent at all. You can save a few thousand dollars by selling on your own.

HDB makes it easy with its seven-step procedure.

Go to www.hdb.gov.sg, then to 'Home Owners' and to 'Selling Your Flat'.

To advertise, a three-line classified ad costs about $35. The only problem is you may get more calls from housing agents than from genuine buyers.

There is also the cost of an HDB valuation. It comes to about $175, but you can ask the buyer to pay for it.

TIP #3: LOCAL KNOWLEDGE

When selecting an agent, local knowledge is useful. Many agents specialise in a neighbourhood, like Tampines or Yishun. Their expertise is matching buyers and sellers in that particular area.

TIP #4: HDB OR LAWYER?

If you are selling an HDB flat that carries a bank loan, you do not need to use a private lawyer. Select HDB to handle the conveyancing and you can save a few hundred dollars.

I'm an excellent housekeeper. Every time I get a divorce, I keep the house. - Actress Zsa Zsa Gabor

TIP #5: DO YOUR HOMEWORK

To get a feel for home prices in your area, call brokers and inquire about the asking prices for units similar to yours. You can also find recent resale prices at HDB's website. Go to Quick Links then hit Resale Transactions.

Next, enter your block number series, such as 800 to 899 in Yishun.

The website will list the selling price of all sales in 800-series of blocks in Yishun in the past three months. Amazing!

TIP #6: DON'T RENOVATE TO SELL

Don't bother renovating to fetch a higher price for your flat. It doesn't pay.

Mrs Money and I learnt the hard way when we sold our HDB flat.

We had renovated our kitchen at a cost of $8,000. But when it was time to sell, an agent told us it added only $1,000 to the flat's value. It's because many buyers prefer a flat that is not renovated so they can fix it up according to their own tastes.

TIP #7 DON'T RUSH TO SELL

Agents may pressure you to lower your selling price. This lowers their commission slightly but they don't mind as it speeds up the sale. I suggest you resist and hold out for a higher price, at least for a month or two.

TIP #8: DON'T WAIT TOO LONG

Your best chance for a sale is in the first month. It decreases steadily after that. Why? Because a flat that is new to the market is 'hot property' and will attract the most viewings.

When you find an interested buyer, try to get him to commit on the spot. Mr Eric Toh, director of Advance Link Property, tells me: 'The chances for a sale decline by 50 per cent when a buyer goes home to think about it.'

TIP #9: GET FINANCING

Don't sell your old flat before you have lined up financing for the new one, or you could end up with nowhere to live. To line up financing, get 'in-principle approval' for a bank loan or 'confirmation on your eligibility' for an HDB loan. Remember to give the bank three months' notice before paying off the old loan or you could be stuck paying an extra three months' interest.

TIP #10: SALES EXTENSION

Finally, you have just six months to sell your old HDB flat after getting the keys to your new flat. But HDB recognises that housing sales are slow. If you need an extension, you can probably get one. Some flats are into their second year of extensions.

In the US : Super-risky home loans

YOU can buy a flat by borrowing up to 90 per cent from a bank or HDB. Your downpayment is 10 per cent using CPF or cash.

In the US, you are permitted to borrow up to 100 per cent of the flat's value. You pay only interest and don't purchase even one dollar of equity. It is almost like renting your home from the bank.

It works well and monthly payments are low. But if home prices fall, you may go into 'negative equity'. It means your loan exceeds your home's market value. At some point, the bank will ask you to top up the difference.

While it's risky, it is the only way that many can afford a high-priced home in certain US cities. In my former hometown of San Francisco, interest-only loans account for two out of every three new home loans.

Risk escalates with the latest US innovation. It is 'option adjustable rate mortgages', also known as option ARMs.

With these, borrowers blow the housing bubble even bigger. You only need to make a minimum payment, like with a credit card. And the ARM's minimum payment is usually less than the interest due.

So, if you don't want to pay all the interest, it gets added back to the principal. Of course, that principal keeps growing like a mushroom cloud.

In the US, some banks advertise option ARMs charging just 1 per cent. 1 per cent sounds like a low interest rate. But that is only the minimum payment in the first year. It is not the actual interest rate that you are paying, which is always much higher.

Advice provided is not meant as a substitute for comprehensive professional advice. E-mail questions to a1admin@sph.com.sg. You can also contact Larry Haverkamp at Mail@AskDrMoney.com.

» Home loans, Part 1: 10 tips for home buyers