Singapore has a homeownership rate as high as 90%, yet less than one in five homebuyers say they are “very familiar” with the mortgage application process.
Therefore, it’s no surprise that many homeowners confuse loan pre-approval with pre-qualification. While similar, mixing these two up could cost you thousands, or even hundreds of thousands, of dollars unnecessarily.
Through this article, we hope to help prospective homeowners clear up any potential misunderstandings. We will explain what an In-Principle Approval (IPA) is—including why you should get one before purchasing a property—and the key differences between pre-approval and pre-qualification. We will also illustrate how failing to understand the distinction can ultimately lead to substantial and unnecessary costs.
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What is an In-Principle Approval (IPA), also known as an Approval-in-Principle (AIP)?
An “In-Principle Approval” (IPA), sometimes also called an “Approval-in-Principle” (AIP), is essentially a commitment from a lender to provide you with a home loan for a specific amount and tenure, based on your selection. To draw an analogy from the corporate world, an IPA for a home loan is similar to a “term sheet” or a “memorandum of understanding.”
Obtaining an IPA helps you budget for your upcoming property purchase. For example, if you receive an IPA for S$900,000, you could potentially purchase a property worth up to S$1.2 million (based on a 75% Loan-to-Value (LTV) ratio for your first home loan).
A typical IPA is valid for 30 days, so if you are still in the “window shopping” phase of viewing properties, you might think it’s too early to get one. However, in most cases, it’s okay to be a little “kiasu” (afraid to lose out), as the bank will likely still approve your loan unless a significant event occurs (such as job loss and/or loss of income, bankruptcy, legal proceedings, other debts, etc.).
Here are the three steps you need to follow to secure an IPA.
1. Choose your lender: The first step is to compare the various home loan options offered by different banks and narrow down your choices to one or two. For convenience, you can speak with a mortgage advisor at AnjiaSG for a free, personalized recommendation.
2. Apply for your IPA: You can apply directly with the bank or through AnjiaSG (for free!). Keep in mind that this step varies by bank. However, the documents required are generally similar to those needed for a standard home loan application, such as proof of income and CPF contribution history. Previously, you also needed to submit credit card statements, but this requirement has largely been eliminated as your Credit Bureau Report provides this information.
3. Wait for the IPA to be issued: Now, you just have to wait for the bank to process your application. Each bank has its own assessment process, and if you pass, they will issue you an IPA. However, since each bank’s evaluation process differs, the next important point is…
Do not confuse Pre-Approval with Pre-Qualification. Here are the main differences between the two.
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Pre-Approval vs. Pre-Qualification—What You Need to Know
The difference between pre-approval and pre-qualification can be summarized by the lender’s level of commitment. Remember, a pre-approval is not legally binding. The loan is still contingent on the value of the property you plan to buy, and strictly speaking, the bank can “go back on its word” without any legal repercussions. In practice, however, once you have a pre-approval, the home loan process is essentially “90% complete.”
With pre-qualification, however, the lender has made no commitment to you. It is merely a rough measure outlining how likely you are to obtain a loan of a certain amount. To do this, the bank will “run the numbers” for you—checking your income and financial commitments to arrive at an estimated figure. But unlike with a pre-approval, they usually do not conduct any legal, bankruptcy, or credit checks at this stage.
The confusion between the two may arise because each bank operates differently. Some banks might treat pre-qualification as a preliminary stage before pre-approval. In such cases, you might get pre-qualified but still fail to obtain the required approval. Possible scenarios include:
- Negative information is discovered during subsequent credit or legal checks, and the bank chooses not to proceed with pre-approval (this is why having a good credit rating is so important).
- The bank offers you a pre-approval, but for a loan amount significantly lower than what you were expecting during pre-qualification.
Some banks may skip the pre-qualification step entirely. Moreover, in many cases, pre-qualification can be extremely informal—it might just be a simple phone call or a conversation with a bank officer. In contrast, a pre-approval is always very formal, requiring you to submit an official application form and documents.
Due to the operational differences between banks, you must always confirm with your lender whether you have received a pre-approval or a pre-qualification.
Skipping the In-Principle Approval (IPA) Step Can Cost You a Lot of Money
We warned at the beginning of this article that mistaking pre-qualification for pre-approval could cost you tens of thousands of dollars. The same can happen if you decide to skip the IPA step. The reason for this lies in the deposit for the Option to Purchase (OTP).
The OTP deposit is essentially a “booking fee” to reserve the property, typically 1% of the property’s purchase price for resale properties and 5% for new launches. For a private home worth S$1 million, that’s S$10,000! If you pay the deposit but later find out you don’t qualify for a loan, you’re out of luck—you have no legal recourse to demand a refund from the seller.
(⚠️ Note: There is an exception for Buildings Under Construction (BUC). The deposit is 5%, and if you cancel the purchase, you can get back 75% of your deposit.)
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This is the most important reason to get an IPA beforehand, but it’s not the only one. If you don’t have an IPA, the following could also happen:
- Inefficient house hunting: As we mentioned, you don’t need an IPA in the early stages. However, it’s very difficult to truly narrow down your property search without knowing how much you can borrow.
- Real estate agents may prioritize other buyers with an IPA: It’s harsh but true—an IPA basically means they are one step closer to a successful transaction. Without an AIP, there’s a high chance the agent’s efforts will be in vain.
- Negotiating is more difficult: Without an IPA, it’s hard to determine the maximum amount you can pay for a property. And if you don’t know that, how can you bargain effectively?
- The transaction process will take longer: Even if you manage to overcome all the previously mentioned obstacles and get your loan approved, the entire process will be unnecessarily prolonged… a pointless waste of time.
At the end of the day, once you start getting serious about your property search, there is absolutely no reason not to get an IPA.
You can start your home-buying journey by speaking with one of our friendly home loan advisors.
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