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Housing Loan Eligibility Pre-qualification & Pre-approval

Going for viewings and speaking with property agents may be the tip of the iceberg in homebuying. Once your heart is set on a desired home, multiple factors, such as home financing and processing paperwork, will complicate the process.

Before applying for a home loan, buyers must ensure they fulfil the specified home loan eligibility. Home loan eligibility is often determined by key considerations such as HDB loan vs bank loan, downpayment, Loan to Value (LTV), Mortgage Servicing Ratio (MSR), and Total Debt Servicing Ratio (TDSR).

What Is House Loan Pre-qualification?

House loan pre-qualification shows that a lender has estimated the amount a prospective home buyer can afford based on their basic financial information such as income, debt, and financial assets such as savings, retirement and investment accounts.

Prospective home buyers would also have to indicate how much they are looking to borrow and how much they intend to contribute towards a downpayment and declare any history of bankruptcy. At this stage, lenders typically run soft credit checks and do not require verification of the information provided.

Please note that a pre-qualification gives prospective home buyers a general sense of how much they can afford but does not guarantee a house loan pre-approval.

What Is House Loan Pre-approval?

Those set on buying a home would have to obtain pre-approval for a house loan before making offers in the housing market.

A house loan pre-approval reflects how much money a lender is willing to let a prospective homebuyer borrow to pay for their home. It is drafted based on the prospective homebuyer's financial profile, which comprises income level, bank and investment account balances, and debts incurred. By performing a hard credit inquiry, the lender can gather information to make informed estimates on the amount the prospective homebuyer can afford.

While pre-approval does not confirm a commitment to lend, it indicates that the lender intends to proceed with the loan as long as the home meets the set criteria and the prospective homebuyer's financial situation remains largely unchanged.

House Loan Pre-qualification Vs Pre-approval

TL;DR, a pre-approval carries greater weight than a pre-qualification. A pre-approval proves that the prospective homebuyer can afford the purchase, while a pre-qualification simply helps determine the home buyer's budget when house hunting.

Pre-qualification	Pre-approval
Documents required include income information, the intended amount to be borrowed, and how much the borrower intends to pay for the downpayment	Documents required include income information, debt, bank accounts, tax filings, and credit score
Processing time can be as quick as a few minutes	processing time may take up to 10 days
Helps estimate a prospective homebuyer's budget	Proof of homebuyer's intention to purchase with adequate finances

Who is Eligible for a House Loan?

The actual house loan application comes after the homebuyer obtains a house loan pre-approval and a seller accepts their offer.

Mortgage lender requirements for HDB and bank loans would require the homebuyer to furnish valid income sources such as six months of pay slips or CPF contributions. Self-employed homebuyers can provide their IRAS Notice of Assessment (NOA).

Homebuyers looking to qualify for an HDB loan would also have to meet the following requirements:

• At least one co-borrower must be Singaporean.
• They must not have taken more than two HDB loans in their lifetime; those who have already taken two HDB loans would have to take on a bank loan instead.
• The combined monthly income of families cannot exceed $14,000, $21,000 for extended families, and $7,000 for singles.
• There is no ownership of other properties; those who have just sold a private property would have to wait 30 months before applying for an HDB loan.
• No owning of more than one commercial property. Commercial property owners must also operate it (e.g. renting out retail space is not permissible). There should also be no alternative sources of income other than the operated business.
• The remaining lease of the property purchased must last until the youngest buyer is 95 years old.

On the other hand, eligibility for bank loans may be more varied depending on the specific bank's requirements. However, HDB and banks will run credit checks on borrowers as a standard requirement. A good credit score can help homebuyers secure a higher loan amount and preferential interest rates.

Homebuyers calculating home loan eligibility can check out the PropertyGuru Finance home loan affordability calculator for more insights.

Types Of Home Loans

For HDB flat buyers, HDB offers a concessionary loan rate pegged at 0.1% above the CPF Ordinary Account interest rate. This interest rate will be revised following any revision of CPF interest rates.

Banks typically offer two main types of home loans: fixed rate loans and floating/variable rate loans.

Fixed rate loans	Floating/variable rate loans
The rate (typically a promotional rate) is fixed and will remain unchanged for the first few years	Rate varies and is tied to a reference rate (e.g. Singapore Overnight Rate Average, or SORA)
The rate does not change even when market rates fall	Changes in tandem with reference rate.
Interest becomes variable after a fixed rate period	Reference rates can change at any time, depending on prevailing market conditions.

Obtaining a pre-approval and/or pre-qualification from a bank does not translate to any obligation to get your home loan from them. As interest rates and terms may vary among financial institutions, it is always wise to check out multiple loan packages before deciding which loan to take.

To better decide which loan best suits your needs, check out the PropertyGuru Finance Mortgage Comparison tool.

What's Next After Deciding On Your House Loan?

Pre-qualifications and pre-approvals are not legally binding. The effectiveness of the loan is still subject to the value of the property the homebuyer intends to purchase, and the bank can withdraw the loan at any time without any legal implications.

Homebuyers opting for a bank loan can consider obtaining an In-Principle Approval (IPA) to streamline the homebuying process.

An IPA is a bank document stating how much the bank is willing to lend a homebuyer after considering their TDSR, MSR, income, and credit score.

Applying for an IPA may be daunting, especially for the uninitiated. PropertyGuru Finance Mortgage Experts are readily available to guide homebuyers through the process.