A Quick Guide to Approval-in-Principle for Home Mortgages

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(AIP) for home loans, or mortgage prequalification, are conditional approval.

AIP can be required for loans of private residential properties or HDB flats.

The outcome of an AIP application can be as fast as 15 to 60 minutes.

You have to submit the financial documents between 14 to 30 days.

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If the loan is approved a Letter of Offer will be issued.

If the required documents are not submitted within this period, you can still re-apply for the AIP

Having an AIP lets you know the loan quantum you are eligible for and the monthly repayment amount.

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An AIP is non-binding for both the applicant and the financier

You are allowed to change financiers even after obtaining an approval-in-principle loan from the financier

You may change loan package with the same financier

So

Even

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Why you should have an AIP?

•Narrow down the property search

•Fast commitment

•Forfeit of booking fee

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Narrow down the property search

AIP lets you know the property you can afford to buy.

Thus you will not be wasting time viewing properties that you later find to be out of your budget when you apply for that loan.

This also explains why some property agents only work with

buyers who already obtained an AIP.

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Fast commitment

you can commit immediately when you have found your ideal property.

There is no waste in time between obtaining the loan and closing the transaction.

During that interval, some other buyers may beat you in buying the property.

But

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Forfeit of booking fee

To prevent other buyers from buying, you may choose to

Sign the option to purchase and lay down the booking fee, before you have obtained the loan.

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But this may not be the best course of action Why?

You may not be able to obtain an ideal loan with a favorable rate, or even if you do it may be with a lower loan quantum.

In the latter case, the deal may fall through if you do not have sufficient cash or CPF fund to top up the shortfall.

Should the deal fall through, you will have to forfeit part or all of the booking fee.

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In another scenario

You may be able to obtain the maximum loan-to-value ratio (LTV)

The valuation of the property has fallen during the interval in which you had signed the option and obtained the loan.

But

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The purchase price you agreed on is $1.5m, but when you have obtained the loan the valuation of the property has dropped to $1.2m.

Assuming that you are eligible for a 80% LTV, you thought you could obtain financing up to $1.2m, but because of the lower valuation you can only secure $960,000.

If you do not have the means to make up for the $240,000 difference, you cannot seal the transaction.

For example

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Things To Be Cautious About

As an AIP is provisional, the bank still can reject the application if there are any changes to your financial status.

Avoid taking other loans or changing jobs before the Letter of Offer is issued.

So

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Just because an AIP is provisional does not mean you should randomly select a bank from which to obtain an AIP, thinking you can secure the same loan quantum from other banks later.

That particular bank may be offering uncompetitive rates and loan features.

And you may later discover that you are not eligible for the same quantum from other banks.

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About Property Buyer Mortgage Consultants

Property Buyer Mortgage Consultants is a research focused independent mortgage broker. We emphasize a consultative approach where we match our client’s financial situation with the best fit mortgage loan, not simply a cheap loan.

We also help property buyers in their buying process helping them avoid pitfalls from unscrupulous property agents. (We are not property agents, therefore there is no conflict of interests.)

We also developed our proprietary home loan reporting tool which provides amongst other things, 23 years Sibor history as well as 6 years worth of SOR.

Our service is free to you as banks pay us a commission on loan deals completed. Banks in turn save on staffing cost as we are not on their payroll. www.PropertyBuyer.com.sg/mortgagewww.SingaporeHomeLoan.netwww.iCompareLoan.com/consultant/