In-Principle Approval (IPA) for home loans: What is it and how do you get it?

Unless you’re planning on paying for your home in cold hard cash, you’ll need to take out a home loan. To get a home loan, you’ll need a bank willing to give you one, which is where In-Principle Approval (IPA) comes in. 

Note: You may have read articles about Approval-In-Principle (AIP). To clear things up, IPA and AIP are the exact same thing. 

In-Principle Approval: What is it?

An IPA is a non-binding document from the bank stating whether they’ll lend you the money needed for your home loan. 

Think of it this way: An IPA to home loans is what an HDB Loan Eligibility document (HLE) is to BTO flats.

Read this: HDB concessionary loan – How to apply for HLE

It doesn’t mean you actually secure a loan on the very day you get your IPA document; it just means that it’s guaranteed that the bank will give you a loan. 

You’re not tied to a commitment to follow through with taking up the loan, so if the interest rate rises or you find a better interest rate elsewhere, you can let the IPA lapse and reapply for another loan. 

For example, you might set your sights on a S$1 million property. The downpayment is 25%, so you’ll need the bank to lend you 75% (S$750,000). 

After applying for IPA, however, you receive results that the bank is only willing to approve a S$500,000 loan. This means you’ll need to cough up the balance of S$250,000 yourself. 

In this case, you might decide to let the IPA lapse and either pick a different home that falls within the loan amount or regroup and figure out a way to either reduce your debt obligations or make more money.

Keep in mind that if your financial standing changes, the bank reserves the right to cancel your IPA. 

So take baby steps. Secure your IPA, buy your house and ensure everything is in order before making another huge financial commitment, such as buying a car or another big-ticket item.  

What will the bank look at for IPA? 

The bank evaluates your overall financial standing based on your credit history and financial health. This includes your monthly debt obligations such as:

• Credit card loans
• Car loans
• Student loans
• Existing home loans

To check how much you can afford, use 99. co’s affordability calculator here. 

How long is the IPA document valid? Your IPA will usually be valid for two weeks to a month, depending on the bank that issued it. 

Armed with your IPA and shortlist of houses, you can start on house viewings with a clearer budget of what you can afford. You can buy a home based on the guaranteed financing during this period, so act fast.

Why is In-Principle Approval critical? 

Unless you’re swimming in cash, here’s why you should have your IPA in hand before pulling the trigger on your dream home. 

1. Narrows down what you can afford

You may have set your eyes on a gorgeous penthouse condo boasting breathtaking views. 

With visions of waking up to the sunrise every morning, you leap at the chance to “chope” your dream home and happily sign the Option to Purchase (OTP) for the unit. 

After all, the OTP is just 1% (usually). For a S$1.5 million property, that comes up to S$15,000. What’s S$15,000 in exchange for a lifetime of happiness? You’ve been scrimping and saving all your life for this moment, so it’s worth it. You’re worth it. 

However, after signing it, you realise you’re unable to secure a home loan. You’ve approached all the banks and begged and pleaded. No dice. Your palms start sweating. 

You have 14 days to go through with your purchase, but no bank wants to lend you the money. Sure, you can negotiate with the condo seller for a time extension, but with the property market on fire, no one wants to keep their house on ice when they have the chance to sell it to someone who can actually pay for it.  

So say goodbye to that little piece of your heart you left at the house viewing forever. Oh, and also that S$15,000 of your hard-earned money because you’ve had no choice but to forfeit your OTP.

Now that’s an expensive lesson. 

2. Accelerates the loan disbursal process. 

Once you’re ready to commit to a property, confirming your bank loan is pretty much smooth-sailing because you’ve already submitted the relevant paperwork when applying for your IPA. 

Apart from signing a few additional documents, you can get ready to pop the champagne and pull out the pineapple for your new home. 

3. Gives you negotiation power

IPA in hand signals to all parties (seller, property agent and bank) that all your ducks are in a row and that you can confidently commit and follow through on your decision to purchase your home. 

For property agents are also far more likely to work with serious buyers who have IPAs because the likelihood of the sale going through is much higher. There’s no point negotiating with sellers and going through all that work if the buyer cannot go through with the purchase in the end. 

4. Lets you plan your finances properly

Once you know exactly how much a bank can lend you, you’ll know what property you can afford and how much you need to save up for the downpayment and mortgage. This way, you won’t be going into your property blind and hoping for the best. 

How do you get In-Principle Approval?

While getting an IPA isn’t exactly a cakewalk, it’s not as tedious a process as you think. We break it down for you. 

Step 1: Find a bank offering competitive home loan interest rates. This is time-consuming, but luckily 99.co is here to help simplify the process.

We pull the latest rates for easy comparison across different banks and give you the best loan for your unique needs.

Find the best mortgage for your home loan here.

Step 2: Contact your preferred bank. A bank representative will send you an IPA form and let you know what documents you need to submit to the bank. Such documents include your CPF contribution history, proof of income and credit history. 

Step 3: After crunching your numbers, the bank will decide how much loan they’re willing to give. Once you receive your IPA, it guarantees you’ll receive financing for your home loan.

Why did the bank deny me In-Principle Approval?

Were you turned down for IPA? You may have bad credit or too many debt obligations during the point of application.  

Imagine two friends, Amanda and Ben, approaching you to borrow the same sum of money. 

Amanda has a stable job and pays off her student loans regularly and on time.

On the other hand, Ben is a freelancer with a car, a student loan, and an open tab at the bar. He’s been struggling to keep up with payments and has asked for multiple extensions. Oh, he also owes Charlie some money.  

Between the two of them, who do you have more confidence that your loan will be duly repaid? 

The same goes for banks. They look at your overall financial standing, and if they see you have too many debt obligations or have missed too many loan repayments, they may reject your IPA or give you a lower amount.

To get your IPA approved or to secure a higher IPA amount, make sure to clear any outstanding debts to prevent them from eating into your Total Debt Servicing Ratio (TDSR) amount. 

Use 99.co’s TDSR calculator to see where you can reduce your debts.

The sooner you apply for your IPA, the sooner you can iron out any potential credit issues and purchase your house before another buyer snaps it up. 

Having it means being able to turn over more puzzle pieces to navigate the already confusing world of property purchase so you get a clearer picture of what you can afford. 

Application is free, and the benefits are aplenty, so there’s absolutely no reason not to apply for it before house hunting. 

TLDR; Have your IPA locked and loaded before putting down a deposit or option fee on any property.

Any more questions on In-Principle Approval? Let us know in the comments section below. 

If you found this article helpful, 99.co recommends Deciding between HDB loan versus bank loan? and Here’s how much you need to afford a condo in Singapore.