Buying your first property can be confusing and time consuming because of the regulation changes that you need to keep up to and remain relevant to these changes.
But whatever the changes are, they are ultimately down to how much the banks are willing to loan based on the regulations of the Tdsr and your own personal commitments.
This is why it is important that you should get an Approved In-Principle (AIP) before committing to purchase a property, no matter how attractive or undervalued the property is.
What Is Approved In-Principle (AIP)?
An Approved In-Principle is basically an official agreement with the bank after they check based on your income and credit history.
The AIP approval is usually short, between 2 to 3 days, assuming you don’t have specifics that they need to further investigate.
Their validity is usually 30 days from the approval date, so you can use that as an official that the bank will lend you money and you can proceed to put your Option To Purchase (OTP) on the property that you are buying.
Why Do You Need An Approved In-Principle (AIP)?
An AIP gives you notice how much banks are willing to borrow money to you. From the banks’ perspective, it is important they they do their due diligence to ensure you have the financial capability to pay the loan back for the entire duration of your loan.
Without having an AIP in place, it can be difficult to engage in negotiations with the seller because you will not know for sure what’s your loan ceiling and thereby unable to make an intelligent choice during the negotiation process.
If that is not all, you might also lose your option to purchase (otp) money should there be complications with the bank and you are unable to get the loans from any banks.
Most agents are also wary of the situation if you do not have an AIP because that would mean the transactions can lapse anytime during the negotiation process and you ended up with time wasting for all parties.
What’s The Steps To Get An AIP?
First, you can check on the rates that are being offered by the various loan providers based on the current market situation.
These rates do change rather quickly so you may want to get yourself updated with the latest available rates.
There are a couple of sites which allows you to compare across the different bank rates but do take note some of the small terms and conditions that are not so evident at first glance.
A good mortgage advisory or independent advisor will be able to explain to you each of the pros and cons and will be patient until you get the right deal before committing a loan.
Once you’ve set on which loan provider you want to take up the loan with, you will need to fill up their application form together with all the required financial information for them to check on your credit history and availability of how much loan you can get.
These includes your past 3 months payslip, last 12 months Cpf statements, Hdb financial info and latest Notice of Assessment.
What Is Considered During The AIP Review
Not all profiles of income derived are treated as equal.
For example, the TDSR limit recognizes full-time employment income as 100% but variable income as only 70%. This means that if you received $50k per year on your rental, they will only recognized 70% of the $50k in their review.
The same goes for self-employed owner who derived their income and are only being recognized 70%.
Dividend income is not treated as income under the TDSR limit.
The TDSR bank restrictions also favour younger age profile as they are allowed to borrow up to a maximum of 35 years before you turn 65 years old.
How Long Do You Need To Wait?
The assessment will usually take at most 2 to 3 days to assess if the information to complete.
If they need more information from you, they will contact to get more supporting documents.
With the AIP in place, you will be in a better position to know how much loans you are able to secure and play the negotiation to your advantage from thereon.
So there you go! Don’t take the risk of having committed to your purchase without first knowing if you are able to obtain a loan.
You don’t want to lose out on your 1% OTP for sure!
P.S: This is a series of educational post relating to property purchasing which hopefully could help some people out there buying property for the first time.
Stay tuned for more!