Home Loan In-Principle Approval (IPA): Can You Change Your Mind?
When in the market for a new home, one of the biggest and most common concerns is, how do I finance my house? Depending on the type of property you’ve got your eye on, you may be eligible to apply for HDB Concessionary Loans or other bank loans. However, there are several variables that will determine the amount you are qualified to borrow, and it is good practice to ensure that your financial situation is healthy before you commit to forking out any money. PropertyGuru’s Mortgage Affordability Calculator is a great starter tool to give you an idea of how much you can afford to pay in mortgage.
If you’ve decided on private property, or to finance your HDB through a bank loan, we recommend first applying for an In-Principle Approval (IPA) or Approval-in-Principle (AIP).
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What is An In-Principle Approval (IPA) or Approval-in-Principle (AIP)?
An In-Principle Approval or Approval-in-Principle is a non-binding agreement from a lender that they will extend you a home loan. An IPA gives you an overview of your borrowing capacity based on your financial situation and history, before you go ahead with securing your loan from banks. Having an idea of how much of a loan you can take will also help you decide if the property you are keen on is within your budget or out of range.
An IPA can also help prevent sticky situations, such as applying and paying the Option to Purchase (OTP) fee to ‘chope’ your dream home, only to find that you don’t qualify for the loan. Even though the OTP is about 1% (or 5% for under-construction buildings, or BUC) of the property’s purchase price, the amount is certainly nothing to sneeze at!
If the property you are interested in is selling at $700,000, the OTP fee will be $7,000. However, if it turns out that you can’t borrow as much as you had initially expected, the downpayment can become unaffordable and out of your budget. In such cases, you would end up having to forfeit the OTP which would mean a few thousands of dollars down the drain!
The IPA would give you greater insight into your finances so that you will be able to avoid making hasty commitments to purchasing a property that you are not able to fully finance.
Where Can You Apply for An In-Principle Approval (IPA)?
There are several ways to apply for an IPA—you can either contact the bank directly, or engage one of our home loan advisors for a free personalised recommendation. Before submitting your application, you will need some financial documents including your CPF contribution history, proof of income and credit history on hand. Submitting your application through PropertyGuru Finance comes with some added perks—the PGF team will help monitor and track your application for you, review the results with you, and even help address any concerns you may have after learning the outcome of your application.
Can you Change your Mind after getting an IPA?
After successfully applying for an IPA, most banks allow you 30 days to decide whether to go ahead and buy a property. During this period, you might be viewing properties and deciding on paying the OTP fee to the property seller. However, a lot can happen in 30 days, and you may find yourself undecided about your home loan despite having gotten the IPA.
Circumstances that Might Change your Mind about the IPA and Home Loan
You may have been exploring other ways to finance your home, and perhaps realised that an HDB loan is more suitable for your current situation.
Alternatively, you may have discovered a home loan from another bank which suits you better, and thus decided to apply for a loan from them instead.
Another possible scenario is that though your IPA application is successful, the loan amount is not quite enough for you to purchase the property you’ve shortlisted.
For example, if you are eyeing a $700,000 property, you may be hoping to get the maximum 75% financing so you can come up with just $175,000 as downpayment. However, there is a possibility that the bank is not willing to lend you $525,000. For instance, they may only approve a $200,000 loan, meaning you’ll need to find another $325,000 to pay upfront.
In such cases, you may want to consider sourcing for other more affordable properties, or looking into other ways to finance your dream home.
Thirdly, in the event of unforeseen circumstances leading to drastic changes in your financial situation, you may no longer be able to qualify for a home loan despite having received the IPA.
For instance, the steady income at the time of your IPA application is no longer available. This could happen because of retrenchment, health issues, or a change in employment. This will mean that the monthly repayments cannot be completed, and under these circumstances, you may be deemed unfit for a home loan due to a loss of income. Remember, the IPA is a non-binding agreement, and the bank or lender is under no obligation to fulfil your loan request.
In Summary, It’s OK to Change your Mind About the IPA
Whatever the reason, it’s perfectly fine to change your mind about the home loan after you’ve gotten the IPA. There are no dire consequences if you decide not to proceed, and you can always resubmit your application again after the validity period is up. Applying for the IPA is also free of charge, so there are no financial implications should you change your mind.
However, do note that successfully applying for IPA the first time has no influence on your subsequent applications. The best way to keep your chance of success high is to always maintain good credit and to pay off any bills in a timely manner.
There’s No Reason Not to Get an IPA
In a nutshell, there is absolutely nothing to lose from applying for an IPA. If anything, it is a good opportunity to check that all your finances are in order, and make more calculated decisions on the property you want to purchase. With the help of PropertyGuru Finance’s home loan advisors, the application process can also be straightforward and painless, and you won’t have to stress about it!
More FAQs About In-Principle Approval (IPA) for Home Loans
What Is In-Principle Approval (IPA)?
An in-principle approval (IPA), also known as approval-in-principle (AIP), is an informal way of getting information on how much the bank is willing to lend you for your home loan.
How Much Is An In-Principle Approval (IPA)?
Applying and getting an in-principle approval (IPA) is free! The easiest way is to apply through PropertyGuru Finance.
What Documents Do I Need for In-Principle Approval (IPA)?
The documents needed for IPA application is similar to what’s required when applying for a home loan. These include pay slips, CPF contribution history, credit card statements, and paperwork from any existing loans you may have.
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