Getting a loan in-principle approval from a bank
Was the title a load of jargon for you? Then you probably haven't tried to buy a property in Singapore yet.
The husband and I decided last week that we've done enough computer-based research and let's start to actually *gasp!* look at some units that are being sold! So instead of just planning on paper, to actually execute the plan. Of course, that's when you realize that the planning (especially if it's something you've never had any experience in) is often lacking.
So according to online sources, before you ask to view someone's property with the intention to buy it, you need to have an In-Principle Approval (for a loan) (IPA for short) from a bank. I still don't have it, so I don't know what it looks like, but I assume it's some sort of document. [After-note: So we went to visit one of my husband's friends' HDB flat, because he happens to own a unit at the same block we were eyeing, and he said that you can TOTALLY go view property even without an IPA, it's like window shopping, and really only need it when you intend to actually offer to buy the property at the point of viewing. Hmmph.] [After-after-note: So apparently for us, an IPA is just a line in an email by the bank which says our IPA is approved for $XXX for a loan tenure of XX years. Oh. I was expecting at least a document to print out lol.]
We got quite confused as to what the IPA actually entailed. Firstly, we were looking at two scenarios: buying a HDB flat and buying a private condo, and the budget we had for each of the scenarios differed by almost half a million dollars. In addition, we have CPF and cash savings, so the actual amount we would borrow in either case would be less than the actual budget (and less than 80% of the property, which is the legal limit for borrowing). If you use those comparison websites for home loans like http://www.moneysmart.sg , they ask you for quite a lot of details including whether you intend to buy a HDB or private, how much is the property and what percentage is your loan, so we were confused as to whether we needed to have a good idea of the loan amount before we asked for an IPA, or not.
For us personally, we used the Moneysmart tool to figure out which bank's loan works the best for us, and then tried to visit that bank (we chose Standard Chartered) to ask about an IPA. For us, it was a matter of deciding whether we preferred a loan with the same interest rate throughout the life of the loan, or one which had a lower interest rate in the beginning and then increases it after maybe the 3rd or 4th year of repayment. The latter is great for people who want to refinance their loans after a few years, but since the husband and I think interest rates are actually going to rise, refinancing to get a better rate might not be possible. Anyway I'm a super-low-risk kind of investor, so we thought we'd go for a loan with the same interest rate. (All these are not fixed-rate loans, but floating rate loans, where the bank adds an additional interest rate over some floating rate, like SIBOR + 0.9% for the first 3 years, and SIBOR + 0.9% for the "same interest rate" type loans and SIBOR +1% for the increasing interest rate type loans)
So anyway, having decided on a bank, apparently you can't just show up at a bank branch and expect them to entertain you, at least not for Standard Chartered. Their bank branches don't usually have their mortgage specialists sitting around, so when we went down to the bank they took down our details and got their mortgage specialist to call back. Apparently for Standard Chartered, you don't even need to meet them in person to get an IPA, the bank person just called me up, understood what we wanted, and then emailed over an application form and a list of documents he needed to process the IPA. Most of the documents he needed (latest payslip, tax notice of assessment, credit card statements, CPF contribution history) are readily available in an electronic form anyway, so it was a matter of filling in the application form together, scanning that in, and sending over the whole bundle to him and hope for the best. (I know for certain that Citibank does this IPA thing through an online form! Which would be extremely convenient. But we already knew roughly which bank we wanted the final loan for so we didn't use the online form.)
This was the point where I kind of kicked myself for not having cleaned up my credit card usage beforehand. I've amassed 9 credit cards from 5 different banks in my working life and just before I left for London, cancelled 2 of them (UOB, because they don't allow you to check your credit card statements online?? -_-), and when I got back, cancelled another 2 of them (promotional credit cards which I never really used), but still had 5 credit cards from 4 different banks at the end of it. I wanted to centralize the usage to two or three cards for some time now, but was too lazy/busy to actually start moving the payments. And because there are now rules on how much you can loan in general (TDSR - Total Debt Servicing Ratio: where all your debts such as car loans, personal loans, mortgage loans AND credit card monthly repayments are not to be more than 80% of your monthly gross income), I had to patiently fill in the info for all of my five cards which was a pain. Compared to the husband who only has 2 cards. Hmmph.
The whole IPA approval was relatively painless, except that when the mortgage specialist received our credit bureau reports, the husband apparently had owed his credit card bank a sum of money for more than 2 months! Actually, it was only because it was UOB, who didn't allow for online credit card statements to be viewed, had charged him annual fees when we were in London (I had cancelled my cards because I was worried this might happen but husband just decided not to use his card at all), and we didn't (and couldn't) realize and it had rolled over one to two months before eventually UOB had waived it anyway. So we had to provide the mortgage specialist the credit card statements that showed all this happening, and he accepted it after that and issued us our IPA. From this we could tell that credit reports didn't really show much detail on exactly what was owed (or maybe even how much was owed?) but it was not an issue in the end.
And in the end, to answer some of the questions I had in the beginning, the IPA basically tells you the maximum loan amount the bank would be willing to offer you, and you don't have to take up the entire amount. But this means that you would be able to go look for a property within your budget. We clarified with our mortgage specialist that we intend to look at both HDB and private, and he gave us different loan amounts with different tenures for HDB and private condo (because the loan restrictions are less tight for private property, so the bank is willing to give us a loan for a larger amount and a longer tenure for buying private property). For us, because we did our own calculations even before approaching a bank, we already knew our own budgets and what kind of loan would entail what kind of monthly payment etc, so the IPA was more of an official confirmation than being informative in any way, but I assume for most people the IPA would be either a wake-up call or a pleasurable confirmation on what kind of property they can buy.
So now we are (proud?) recipients of a IPA, and the next step of actually calling up agents and asking to view flats... start.
The husband and I decided last week that we've done enough computer-based research and let's start to actually *gasp!* look at some units that are being sold! So instead of just planning on paper, to actually execute the plan. Of course, that's when you realize that the planning (especially if it's something you've never had any experience in) is often lacking.
So according to online sources, before you ask to view someone's property with the intention to buy it, you need to have an In-Principle Approval (for a loan) (IPA for short) from a bank. I still don't have it, so I don't know what it looks like, but I assume it's some sort of document. [After-note: So we went to visit one of my husband's friends' HDB flat, because he happens to own a unit at the same block we were eyeing, and he said that you can TOTALLY go view property even without an IPA, it's like window shopping, and really only need it when you intend to actually offer to buy the property at the point of viewing. Hmmph.] [After-after-note: So apparently for us, an IPA is just a line in an email by the bank which says our IPA is approved for $XXX for a loan tenure of XX years. Oh. I was expecting at least a document to print out lol.]
We got quite confused as to what the IPA actually entailed. Firstly, we were looking at two scenarios: buying a HDB flat and buying a private condo, and the budget we had for each of the scenarios differed by almost half a million dollars. In addition, we have CPF and cash savings, so the actual amount we would borrow in either case would be less than the actual budget (and less than 80% of the property, which is the legal limit for borrowing). If you use those comparison websites for home loans like http://www.moneysmart.sg , they ask you for quite a lot of details including whether you intend to buy a HDB or private, how much is the property and what percentage is your loan, so we were confused as to whether we needed to have a good idea of the loan amount before we asked for an IPA, or not.
For us personally, we used the Moneysmart tool to figure out which bank's loan works the best for us, and then tried to visit that bank (we chose Standard Chartered) to ask about an IPA. For us, it was a matter of deciding whether we preferred a loan with the same interest rate throughout the life of the loan, or one which had a lower interest rate in the beginning and then increases it after maybe the 3rd or 4th year of repayment. The latter is great for people who want to refinance their loans after a few years, but since the husband and I think interest rates are actually going to rise, refinancing to get a better rate might not be possible. Anyway I'm a super-low-risk kind of investor, so we thought we'd go for a loan with the same interest rate. (All these are not fixed-rate loans, but floating rate loans, where the bank adds an additional interest rate over some floating rate, like SIBOR + 0.9% for the first 3 years, and SIBOR + 0.9% for the "same interest rate" type loans and SIBOR +1% for the increasing interest rate type loans)
So anyway, having decided on a bank, apparently you can't just show up at a bank branch and expect them to entertain you, at least not for Standard Chartered. Their bank branches don't usually have their mortgage specialists sitting around, so when we went down to the bank they took down our details and got their mortgage specialist to call back. Apparently for Standard Chartered, you don't even need to meet them in person to get an IPA, the bank person just called me up, understood what we wanted, and then emailed over an application form and a list of documents he needed to process the IPA. Most of the documents he needed (latest payslip, tax notice of assessment, credit card statements, CPF contribution history) are readily available in an electronic form anyway, so it was a matter of filling in the application form together, scanning that in, and sending over the whole bundle to him and hope for the best. (I know for certain that Citibank does this IPA thing through an online form! Which would be extremely convenient. But we already knew roughly which bank we wanted the final loan for so we didn't use the online form.)
This was the point where I kind of kicked myself for not having cleaned up my credit card usage beforehand. I've amassed 9 credit cards from 5 different banks in my working life and just before I left for London, cancelled 2 of them (UOB, because they don't allow you to check your credit card statements online?? -_-), and when I got back, cancelled another 2 of them (promotional credit cards which I never really used), but still had 5 credit cards from 4 different banks at the end of it. I wanted to centralize the usage to two or three cards for some time now, but was too lazy/busy to actually start moving the payments. And because there are now rules on how much you can loan in general (TDSR - Total Debt Servicing Ratio: where all your debts such as car loans, personal loans, mortgage loans AND credit card monthly repayments are not to be more than 80% of your monthly gross income), I had to patiently fill in the info for all of my five cards which was a pain. Compared to the husband who only has 2 cards. Hmmph.
The whole IPA approval was relatively painless, except that when the mortgage specialist received our credit bureau reports, the husband apparently had owed his credit card bank a sum of money for more than 2 months! Actually, it was only because it was UOB, who didn't allow for online credit card statements to be viewed, had charged him annual fees when we were in London (I had cancelled my cards because I was worried this might happen but husband just decided not to use his card at all), and we didn't (and couldn't) realize and it had rolled over one to two months before eventually UOB had waived it anyway. So we had to provide the mortgage specialist the credit card statements that showed all this happening, and he accepted it after that and issued us our IPA. From this we could tell that credit reports didn't really show much detail on exactly what was owed (or maybe even how much was owed?) but it was not an issue in the end.
And in the end, to answer some of the questions I had in the beginning, the IPA basically tells you the maximum loan amount the bank would be willing to offer you, and you don't have to take up the entire amount. But this means that you would be able to go look for a property within your budget. We clarified with our mortgage specialist that we intend to look at both HDB and private, and he gave us different loan amounts with different tenures for HDB and private condo (because the loan restrictions are less tight for private property, so the bank is willing to give us a loan for a larger amount and a longer tenure for buying private property). For us, because we did our own calculations even before approaching a bank, we already knew our own budgets and what kind of loan would entail what kind of monthly payment etc, so the IPA was more of an official confirmation than being informative in any way, but I assume for most people the IPA would be either a wake-up call or a pleasurable confirmation on what kind of property they can buy.
So now we are (proud?) recipients of a IPA, and the next step of actually calling up agents and asking to view flats... start.