Can I use my CPF for Stamp Duty and other questions

My all time common question from clients is “Can I use my CPF for Stamp Duty (or Survey fees or Agent’s fees etc)”. This is quite understandable as financing is a key question during home purchases.

I can personally understand that very well. I used my CPF to pay for almost everything relating to my own home purchases. It was a very personal decision.

As to whether it is better to use Cash or to use CPF to pay for the various fees involving a home purchases, it is a very highly debatable issue and it is your personal choice.

My view is that there is no right or wrong answer. It really depends on your own financial circumstances (if you don’t have enough cash, what’s there to even argue) or your own retirement plans (is the 2.6% accrued interest a good or a bad thing).

This article has no intent to get into this difficult issue 🙂

Let’s focus on the key issue. Can I use my CPF for Stamp Duty and other payment items that are involved in a house purchase.

Can I use my CPF for Stamp Duty and other fees

Yes, you can use your hard earned CPF for Stamp Duty and other fees. Period.

The only question is whether you need to use cash to pay for the fees first and then get a reimbursement from CPF. OR you don’t even need to come up with any cash and CPF will be used to take care of those payments. That is actually the most important question. Because at the end of the day, if you don’t even have any spare cash and yet you have to use cash first before waiting for the CPF reimbursement, it is not really helpful, is it ? 🙂

Let’s approach the use of CPF for paying for a house purchase from a buyer’s point of view and then a seller’s point of view.

Buyer using CPF for Stamp Duty and other fees

The mother answer of all answers to this familiar question is actually clearly documented in this CPF FAQ item “using CPF for home purchases“. Do visit the link and read it for more details on whether you can use CPF to pay for stamp duty and other fees and more importantly how do you do that (usually your lawyer will manage all these).

I am just summarising some of the more common items.

A buyer can use CPF for paying the following……

• Downpayment

HDB Loan : HDB loans need 10% downpayment before you can get a loan for 90% from the government. You can use CPF for the whole 10% downpayment. The option fee of $5,000 must be in cash

Bank Loan : Bank Loans need 25% downpayment before you can get a loan for 75% from the private bank loan. You can use CPF for the 20% downpayment. The first 5% downpayment must be cash

• Stamp Duties and Survey Fees
  Buyer Stamp Duty (BSD) : Yes
  Additional Buyer Stamp Duty (ABSD) : Yes
• Legal Fees : Yes and very happy lawyers too.

A buyer CANNOT use his CPF to pay for the following.

• Agent’s fees

Usually for the purchase of a private property, you do not have to pay an housing agent for any fees as we will co-broke with the seller’s agent. But for a HDB purchase, if you are a buyer, you will negotiate with an agent if you want to hire one to help you. This is optional as most HDB buyers do not hire an agent (even in my humble opinion, you should). Even HDB has also tried that it is easy to do your own purchase and even provided some good details, some customers still prefer to have an agent to do the leg work and paper work for them. In that case, they will pay the agent a fee (perhaps 1% of the purchase price). This 1% agent fee is NOT payable by CPF and you must pay the property agency in cash when they bill you after the transaction (and with GST too)

• Option Fee

When you purchase a HDB flat or a private condo, you are required to put down an option fee. For HDB, it is $1,000 (usually) first and then an exercise fee of $4,000 (usually). For private properties, it is 1% (usually) first and then an exercise fee of 4% (to form the first 5% of the purchase). In both cases, this is a CASH payment and not allowed to be used by CPF. This is especially important in HDB purchases for cash strapped buyers. On the other hand, if a buyer for a HDB flat is also selling his own current HDB flat, it will be also a “left hand to right hand”. Except if it is a negative sale.

• Renovation and Repairs for the property : Yes cannot. Don’t ask.
• Caveat Fee and Title Search Fees : These are cash transactions but it is less than $200

Differences of using CPF when buying a HDB property, a resale property and a new launch

There is a very important point which I need to stress. When you want to use CPF to pay for any of these fees, you need to know this “timing” issue.

Remember the monies you need to pay for the fees are locked in your CPF savings. They are not cash. Hence, there is a need to “apply” to CPF Board for the use of the money. Every time you heard this word, “apply”, you know there are two elements involved. Approval and Time. Approval is as per above. Time is when will the money be released to you when approval is done.

When you are purchasing a HDB flat, all payments (except for the first $5,000 option money) are executed at the completion date. However, within 10-14 days of approval from HDB, you would need to pay the buyer’s stamp duty (yes HDB purchase has a buyer’s stamp duty). If you dont have enough CPF at this point of time, then you will have to pay in cash. However you can claim back the cash used if your CPF is enough at the END of the transaction. In addition, legal fees and surveying fees etc will be paid at the completion date too. Hence there is no need to worry about using cash to pay first.

When you purchase a resale private property, you are supposed to pay your Buyer’s Stamp Duty (BSD) and if relevant, Additional Buyer’s Stamp Duty (ABSD) within 14 days of option exercise date.

As stamp duty is payable within 14 days from the date of the sale and purchase agreement or the date of acceptance of the option to purchase, you will need to use cash to pay the stamp duty first.

Because of this timing issue, you will need to use cash first and then the lawyer will apply for the reimbursement at the end of the completion (which is 8 weeks after your option exercise date). 14 days need to pay already. Completion in 8 weeks and hence, the CPF approval and refund will come back after 8 weeks. Pay first. Take back later.

For new launch, there is no such issue as the lawyer can usually get all the approval and release of funds together in one single transaction in time for the completion of the transaction (which has a different timeline from a norma resale completion. Not going to cover that in this article but perhaps in a subsequent article).

Seller using CPF for Stamp Duty and other fees

The answer is NO to everything. That means can you go ahead and use CPF to pay for the seller stamp duty, agent’s commission, legal fees for the sale etc ? The answer is NO. Everything is cash in a SALES transaction.

Think about it this way.

When you have a property under a HDB/bank loan and you have been using your CPF savings and contributions to pay for this property, who has the first and second charge on your property ? It is the bank and then the CPF. You need to be using your sales proceeds to pay them off completely first. First the HDB/Bank Loan. Then the CPF. They have full rights to your sales proceeds first.

You are paying back CPF for the principal amount and the famous accured interest. How can you now (before you pay back) use the CPF to pay for stamp duties and your friendly lawyer and even more friendly agent. Importantly, after you paid back the CPF (and accrued interest), the money is “locked back up” in CPF and so how can you withdraw it to pay your rich lawyer and your handsome agent :). You no longer have a property to make that happen.

Then why do some sellers not have to fork up a single cent when they sell a property ? That some has this impression that you dont have to pay anything when you sell a property.

The answer is they are actually paying it in cash and not from CPF. This is because they have cash proceeds (ie there are monies left) after paying off the HDB/Bank Loan and then CPF and its accrued interest. With the cash proceeds, the lawyers then do a “helpful” and “seamless” payment for their legal fees (of course) and the agent’s commission (grin) and other relevant fees.

Else if you have a negative sale (where your cash proceeds are not enough to be refunded back to CPF after paying off the bank loan), everything else is in cash and out of your pocket (savings, personal loans, uncle’s loan, grandfather’s inheritance, sugar daddy etc). Read about this in the following article of mine.

I hope this article is helpful to understanding if “can I use my CPF for stamp duty” and other associated fees for a purchase of a property.