Why Is Getting a Home Loan Approval In Principle Important?

Approval in Principle (AIP) is an agreement stating a bank’s promise to lend you money for a home loan. The bank will grant AIP based on your credit history and overall financial health. Once a bank grants you AIP, you have 30 – 90 days to buy a home with guaranteed financing.

How Do You Get Approval In Principle?

It’s a tedious process, but the result of not getting AIP (like forfeiting your booking fee) is motivation enough to get it. Here’s an easy three-step process to get AIP:

Step 1: You’ll want to get AIP from a bank that offers competitive loan interest rates, meaning you’ll have to contact several banks. It’s a time-consuming process finding the right bank, but MoneySmart can help.

Step 2: After finding a good home loan package on MoneySmart, a representative will send you an AIP application form and advise you on which documents you need to be submitted to the bank.

Step 3: You’ll receive your AIP, guaranteeing that you’ll receive financing for your home loan.

What Happens If You Can’t Get Approval In Principle?

If you’re denied AIP, it’s usually due to bad credit history or debt obligations being too high at that point in time. Banks won’t grant AIP unless they’re confident you can handle the financial responsibility of the target amount you are requesting for. So if you do not meet the requirements for the amount you are hoping to loan, the bank will give you an indication of the maximum amount they can lend you at this time. Not having AIP creates several problems:

  • Good property agents will avoid you: Some property agents may not be as on the ball for you if you don’t have an AIP.
  • You’ll be buying blind: Without AIP, it’ll be impossible to bargain the price of a home because you won’t know how much a bank might lend you, if they lend to you at all.
  • You’ll risk losing your deposit: If you paid your booking fee on the resale HDB/EC or private property you wanted, if you can’t find a bank to give you a loan, you’ll end up forfeiting the thousands you paid on the deposit!
  • You can’t plan your finances: If you don’t know how much a bank will lend, you won’t know what type of flat you can afford and how much savings you’ll have left over after paying your down payment.