How to get an IPA from a bank in Singapore is something you should know if you intend to finance your property purchase with a bank loan. Many homeowners confuse loan pre-approvals with pre-qualification. Although similar, confusing the two could cost anything from a few thousand dollars to six-figure sums.
For the uninitiated, pre-approvals are also known as In-Principle Approvals (IPA). In this article, we will explain an IPA and clarify any misconceptions prospective homeowners may have between pre-approvals and pre-qualifications.
Already know how to get an IPA from a bank? Then start browsing for the best home loans on the market using our mortgage comparison tool.
Pre-approvals Vs Pre-Qualifications (Video)
If you’re unsure of the difference between pre-approvals and pre-qualifications and are short on time, let Paul Wee, Vice President – PropertyGuru Finance summarise them for you in this video. If not, read the article on how to get an IPA from a bank!
What Is an In-Principle Approval?
An In-Principle Approval (IPA), sometimes also referred to as an Approval-in-Principle (AIP), is essentially a commitment by a lender that they will extend you a home loan – up to a specific amount and tenure – if you so choose. For those in the corporate world, think of an IPA as akin to a term sheet or memorandum of understanding.
A typical bank’s IPA is valid for 30 days, so if you’re still in the ‘window shopping’ phase of your property search, you may think it’s a little premature to get a bank IPA. However, most of the time, it’s okay to get a little ‘kiasu’ because the banks will likely still approve your loan subsequently unless something material has taken place (such as loss of job and/or income, bankruptcy, legal suits, additional debt, etc).
What Is the Difference Between Pre-Approval Vs Pre-Qualification?
The lender’s level of commitment can sum up the difference between pre-approvals and pre-qualifications. In practice, when you get a pre-approval (which is the bank IPA), the home loan process is more or less ‘90% done’.
In a pre-qualification, the lender has not given you any commitment. Rather, it is a rough gauge outlining how likely you are to qualify for a certain loan amount. To do this, the bank will ‘run the numbers’ for you – examining your income and financial commitments to make this estimate. However, unlike a pre-approval, they will typically not have run any legal, bankruptcy, or credit checks at this stage.
Why get an IPA?
Mistaking a pre-qualification for a pre-approval could cost you tens of thousands of dollars. The same could happen if you decide to skip the IPA step because of the Option to Purchase (OTP) fee.
The OTP fee is essentially a ‘booking fee’ to reserve the property, and it typically costs 1% of the property purchase price. For a $1 million private property, that’s $10,000! If you pay the OTP fee and subsequently find out that you don’t qualify for the loan, you’re out of luck – there’s no legal recourse to get the seller to return the OTP fee to you (you’ll have to rely on the goodness of their heart). The only exception is for buildings under construction (BUC), whereby the option fee is 5%, and if you cancel, you can recover 75% of it.
And while that’s the most compelling reason to get an IPA, it’s not the only one. If you don’t have an IPA, here’s what is likely to happen.
1. Your Property Search Is Inefficient
While you don’t need a bank IPA in the early stages, it would be extremely difficult to narrow down property choices without knowing how much you can borrow.
Getting an IPA helps you to budget effectively for your upcoming property purchase. For example, if you have an IPA for $600,000, you can probably buy a property that costs up to $800,000 (based on a loan-to-value limit of 75% for your first home loan).
To better plan for your budgeting, also use our Mortgage Affordability Calculator. You can play around with figures to work out a comfortable budget for your property.
[AffordabilityCalculator][/AffordabilityCalculator]
2. Property Agents May Prioritise Other Buyers with an IPA
This seems harsh, but an IPA brings them one step closer to a successful deal. Without an IPA, there’s a huge risk the agents may end up doing a lot of work for nothing.
3. It Will Be Harder to Bargain
Without an IPA, it’s harder to determine the maximum amount you can pay for a property. How can you effectively bargain without this knowledge?
4. The Closing Process Takes Longer
Even if you overcome the previous hurdles and get your loan approved, the whole process will be drawn out… and for nothing.
How to Get an IPA from a Bank in 3 Steps
Convinced about securing a bank IPA? Here’s how to get an IPA from a bank in three easy steps.
First, choose a preferred lender. Compare the various mortgage packages on the market and narrow down a few options. To get the latest interest rates on the market, you can use the PropertyGuru Finance mortgage comparison tool.
Second, apply for your IPA. If you intend to apply for an IPA with different lenders individually, it can get quite tedious. Aside from having to navigate the paperwork, each bank may have varying processes. The easiest way is to let one of our PropertyGuru Finance handle the IPA application for you for free!
The documents here will be similar to what you would need for a standard home loan application, such as proof of income and CPF contribution histories.
The third and final step is to sit back and wait. It’s all in the banks’ hands now. They will go through their own assessment process and, if you pass, issue you your bank IPA.
Secure an IPA with PropertyGuru Finance
Now, keep in mind that both pre-qualifications and pre-approvals (IPA) are not legally binding. The loan is still subject to the value of the property you plan to buy, and the bank can technically ‘go back on their word’ with no legal consequence. However, the pros of securing an IPA still far outweigh any cons. The bottom line is that there is no reason why you should not get an IPA once you start getting serious about your property search.
Each bank’s assessment process is different. Some banks have a pre-qualification as a preliminary stage before you can secure an IPA. Others may skip the pre-qualification step entirely. Furthermore, in many cases, pre-qualifications can be very informal – they can just be a simple phone call or conversation with a bank officer.
In such cases, you may obtain a pre-qualification but a subsequent credit or legal check uncovers negative information and the bank elects not to give you an IPA (this is why it’s so important to have a good credit rating). Or they may give you an IPA, but for a much lower amount than what you expected from the pre-qualification
And because of the variations between banks, it is important to clarify with the lender whether what you have received is a pre-approval or a pre-qualification.
Securing an IPA can be confusing, especially if it’s your first time, so let our friendly PropertyGuru Finance Mortgage Experts help you. Not only can they assess your financial situation and help you land on the best home loan, but also they can guide you through the entire IPA application process. The best part? All of it is done at no cost!
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