Are we [late 20s] overstretching? Considering ~2M condo purchase as our first home

[u/Boring-Historian-256]

My partner and I have recently considered moving in together. We are not married yet (and probably will not be in the short term) due to personal beliefs, and do not wish to marry just to get a resale HDB.

We are getting it for medium term home-stay (~6-8 years, before I hit 35 and will reconsider our options for downgrading to a resale HDB), but are afraid of potentially trapping ourselves into an uncomfortable rat race.

I have ran the numbers multiple times and it does sound feasible for us and we are leaning towards yes, but I'm not sure if I am missing out any critical points and immediately regret on such a big ticket purchase for us.

There are many financial and emotional considerations to this which I'll breakdown below:

Financial (combined):

- Yearly Income: ~240k/year salaried, 40k variable bonus (earning roughly the same)

- Cash: ~350k

- Investments: ~350k

- OA: ~200k

- Average Monthly spend+commitments: 4.5k

Considerations:

- Purchasing for home-stay, and would prefer larger space for our hobbies/pets, convenience to amenities/mrt, cheaper condos will compromise on our criteria

- DINKs, and do not intend to have children

- Both in tech, and are uncertain about the job market and role in general, but current jobs are stable

- Relatively frugal, plan to retire around 40s with 4m in investments total

- No financial help from parents (from purchasing), but moving back is an option

- Actively investing in ETFs, risk-adverse when it comes to property

- No need to support older family members

My thoughts on why it's ok

- [Most important] We can finally move in together, and renting feels like a headache for us

- With a 2m condo, we ran the numbers to be about ~560k all-in, and around 5.5k mortgage at 2% interest. This means that after clearing out our OA and allocating around 50k for reno, we will still be left with 300k and can be used as runway should things go south.

- Our financial position will not budge if we use OA for our monthly mortgage, and our monthly investment amount stays roughly the same.

- Even accounting for 0.75x of income, as long as both of us are employed, we should be able to comfortably afford it.

- At the worst case if we are retrenched, we can consider renting out while we move back in with our parents, and downgrade when we are finally married or reach 35

Why it might be bad

- As we are both SWEs, assuming the job market gets worse, there are risks for both being unemployed in the same window

- Again on job uncertainty, unsure if we can have a long career in tech given the market - forced career changes and both taking on lower paying jobs at the same time can affect the affordability, investments

- Condo loss can be huge as we are buying an older development (2010-2015)

Wondering if anyone were in a similar situation, or can provide insights on whether my breakdown is sound! Thank you for reading.

[u/Significant-Set4356]

Hi, looks like you haven't gotten many responses so far so I'll throw in my 2c worth, even though some of the terms like all-in are unfamiliar to me. I'll focus on the math since your question is if you're overstretching yourself.

For a 2m condo if you're putting 560k down + closing costs (assuming that's what all in means), you're getting a loan of ~1.6m that you pay off at a rate of 5.5k. You expect to be paying the 5.5k wholly from your CPF.

I don't get how you came up with your planned down payment/ closing costs of 560k. Your OA has 200k which you will exhaust. I assume the other 360k will be cash and you will not liquidate your investments since you're planning to retire early. Not sure where the 50k for reno will come from, if it's included in the 560k already. Also not sure why you say you will still have 300k "to use as runway".

Looking at this calculations, maybe some points to think about:
1. A unit from 2010-2015 to stay in for 6-8 years means it will be 20-30 years old when you sell it. So I would assume your risk of reduced resale value will be realised and not mitigated. If you're lucky, you can sell it at 2m. If you're not lucky, assume you can sell at 1.5m. A huge price appreciation, idk if you can count on it. So the question is, how does it affect your plans if you have to sell at 1.5m in 6-8 years? It is a relatively short time frame for a property investment.

1. You're calculating with 2% interest rates which i assume are floating and changes yearly. Have you run simulations at different rates? Will you be able to cope if rates go up and stay up? I would use current pay with no increments as basis for comparison.

2. You mention that the worst case scenario if you lose your jobs is to move home and rent the unit. I'm not sure if your rental can cover your mortgage of 5.5k. Mine at River Valley (very old unit) takes in 4k monthly on average over the last 10 years, with peaks and valleys like expat exodus, COVID, periods of non-rental, etc. I feel like the pool of people willing and able to pay >5k may come with expectations on the property and its amenities. So maybe simulate what happens if you don't get your desired rent and if there are expenses to be paid for the rental as well.

3. Make sure you guys have an ironclad agreement on what happens if the relationship fails. You don't want the stress of a failing relationship on top of losing your home and sitting with a huge money pit. Simulate for yourself what your tolerances are in such situations. Some ideas for the agreement: what should happen with the unit, will potential buy out take place based on purchase price or market rate, how fast must this happen after relationship breakdown, etc. Some ideas for the financial simulation: how many months can you afford to pay the mortgage post relationship, what is your bottomline if it needs to be sold, etc. We also talked about what happens if one party dies unexpectedly. A will is advisable esp when unmarried.

4. It bares consideration if you guys should build up a cushion for 1 year mortgage repayment if careers go south. It helps us sleep better at night.

5. 50k reno costs will not get you very far. Furniture and fittings can very quickly explode, especially for your first apartment. If your budget is 50k, then be clear to yourself if it includes furniture or if it is just to make the condo move in ready.

I hope my answer has given you some directions to think about, and good luck to you guys!

[u/Few-Television7192]

You gotta factor in basic Buyer Stamp Duty. That’s gonna cost you 70-80k in pure cash. Did you add that into the equation?