Getting the In-Principle Approval for your home loan is in itself a mini-milestone of buying a new home. But as any potential home buyer would know, you could do a whole load of research and still not be aware of every little bit of the process of getting a mortgage loan, let alone buying a home!
Perhaps you’ve familiarised yourself with IPA, and then the terms “pre-approval” and “pre-qualification” pop up. But, what do they even mean? Does getting pre-approved not mean you qualify and does pre-qualifying not mean you’ve been approved?
Home loan IPA can be a lot to unpack, with many homeowners holding misconceptions around the process. Some may not know the importance of getting an IPA, and others may not know the differences between pre-approval and pre-qualification.
Well, if you’re one of those people, don’t fret. We’ve been there too, and we’re going to help demystify this.
A quick recap: What is Home Loan IPA again? And is it AIP or IPA?
You can use both In-Principle Approval (IPA) and Approval In-Principle (AIP) interchangeably. They mean the same thing, but for the purpose of this article, let’s keep with IPA.
IPA is somewhat of a commitment extended by lenders to say that they will be able to extend you a certain amount for your home loan in Singapore. Typically, this will also include your tenure and your monthly repayment amount.
Apart from numerous other benefits, IPA helps you stay on top of your financial planning by giving you a rough idea of what you might be able to afford. For example, using the loan-to-value (LTV) ratio, you’ll be able to calculate how much your new home should cost you.
The LTV ratio suggests that the value of your home loan should only be 75% of the total value of your home.
As you narrow in on houses, sellers and property agents may be heartened by your IPA, because it serves as proof that you’ll indeed be able to afford your home purchase.
IPA can also give you more bargaining power for a home because you can use it to “guarantee” that you can afford your end of the bargain as leverage, since other potential competing homebuyers may not have their IPA.
How can you secure your IPA?
You can secure your IPA by approaching the bank that you’d like to get your home loan.
Before that, you’ll want to do some research on what loan package you’d like. This might be a tall order because there are hundreds of home loan packages in the market!
This is where a mortgage broker in Singapore might be able to help out with ready access to the best home loans that can fit your needs perfectly.
After you’ve narrowed in on a bank, you’ll have to submit the necessary documents. Typically, these include your CPF contribution history, proof of income, and tax returns. While the procedure may vary by the bank, it’s a good idea to have your Singpass details ready to use at any point!
Then, you can apply your IPA. Depending on the banks’ normal turnaround time to process IPA applications, you’ll just need to wait with your fingers crossed and hope that you pass the banks’ assessment processes!
While banks are the ones who grant you your IPA, it may not be that clear cut – which leads us to the next point.
Pre-Approval and Pre-Qualification? What’s the big difference?
The key difference between these two terms is in the level of commitment banks might have to you and loaning you the amount you’d like.
If your IPA gets pre-approved, it means that a bank is more or less almost definitely going to lend you the amount that’s in the IPA.
Keep in mind that your home loan will still be subject to the value of the property you want to buy, so there’s still a chance that a bank could revise their decision if they wanted to, although this may rarely ever happen.
If your IPA is in a pre-qualification stage, however, it means that you’ve gotten no commitment from the bank. In this scenario, a bank will simply crunch some numbers for you based on your financial situation and give you an estimate regarding the likelihood of you qualifying for a certain loan amount.
In the pre-qualification stage, the bank will also not run any official legal checks on the authenticity of your financial claims. Namely, it won’t run any legal, bankruptcy, or credit checks at this stage of the process.
Sometimes, pre-qualification can be very informal and may even take place over the phone with a bank officer. On the other hand, pre-approvals will always be formalised and will require that you submit all relevant documentation.
Does the Pre-Qualification stage mean that your home loan IPA has been rejected?
Not exactly. It depends entirely on how the bank you’ve applied with operates. In most cases, the pre-qualification stage is used as a preliminary stage pre-approval.
Say you pre-qualify and still don’t get the approval for your home loan in Singapore? Perhaps your credit checks uncovered discrepancies or other negative information that convinced your bank against offering you pre-approval. As such, it’s always important to maintain a stellar credit score.
With that said, it’s crucial to remember that different banks have different processes. So make sure to verify whether what you’ve gotten is a pre-approval document or a pre-qualification document for your bank loan.
Sounds troublesome? It’s certainly worth it to apply for an IPA.
When you’re ready to buy a home, you’ll exercise something called the Option to Purchase (OTP). This is an agreement between you and the seller that you’re going to be buying the property based on the terms and conditions within the agreement. You’ll then need to pay an Option Fee, which is usually 1% of the cost of the property.
Imagine you’re buying a S$1,000,000 private property. Just the option fee would set you back S$10,000. Now, what if you find yourself unable to secure a bank loan for the home after paying your option fee? In this case, the seller would have the absolute right to keep your S$10,000 as you walk away with a hole in your pocket.
Having an IPA would prevent this from happening because you’ve technically already gotten approval for the home loan from the bank.
Some of the other benefits of having an IPA include being able to know early if you’ve got any credit issues, not needing to waste time on paperwork for your actual home loan application, and being able to come across like a serious buyer, as opposed to other buyers.
A mortgage broker in Singapore can help you navigate IPA
To save yourself time and risk, it’s always advisable to apply for IPA for your bank loan from a bank that you know for a fact you want to proceed with.
Apart from all the other burning mortgage-related questions you might have, we can also help you apply for an IPA that fits your lifestyle, needs, and desires for the best home loan packages, whether you’re looking for a bank loan for HDB or a new private property!