Why You Need To Get Pre-Approved Before Buying A Property

One of the best steps you can take to make the process smoother is to get pre-approved for a home loan. Let’s dive into why this is so important, with a real-life story from our experience to illustrate the point.

What is Pre-Approval?

Getting pre-approved for a home loan means a bank checks your financial situation and tells you how much they are willing to lend you. This isn’t a commitment to give you a loan just yet, but it gives you a good idea of your borrowing power. It’s like getting a head start in the home-buying race.

Why Get Pre-Approved?

Know Your Borrowing Power

First and foremost, pre-approval helps you understand how much money you can borrow. The bank looks at your income, debts, credit score, and overall financial health to give you a number. Knowing this figure is crucial because it sets realistic expectations for your home search. You’ll know right away which homes are within your budget.

Set Your Budget

With a pre-approval in hand, you can set a clear budget. This saves you time by narrowing down your options and helps avoid the heartbreak of falling in love with a home that’s out of reach. You can focus on houses you can actually afford, making the whole process more efficient and less stressful.

A Real-Life Story: D and A’s Experience

Let’s take a look at a real story to see why pre-approval is so essential. D and A, a married couple, reached out to us to help them find their dream home in Singapore. D was very confident about his finances. He said he had already checked his loan approval limit. Trusting his confidence, they decided to go ahead with the purchase process.

To make sure they understood all the financial aspects, we provided them with a breakdown of the upfront payment, loan amount, and monthly installments. Everything seemed fine, and they agreed to proceed.

But then, when it came time to submit their income documents to the bank, we hit a road block. We discovered that D had a bad credit history and couldn’t get a loan. This put them in a tight spot, as they risked losing their deposit if they backed out of the purchase. Thankfully, A had a clean credit history and could take the loan in her name, saving the day and allowing them to buy their home.

D and A’s story shows how important it is to get pre-approved before jumping into the home-buying process. Their experience could have been much smoother and less stressful with pre-approval.

How to Get Pre-Approved in Singapore

1. Gather Your Documents: To get pre-approved, you’ll need to provide the bank with several documents. These include proof of income (like payslips and tax returns), identification (like your NRIC), and details of your existing debts and financial commitments.
2. Choose the Right Bank: Different banks offer different loan packages and interest rates. Take some time to compare your options and choose the one that suits you best.
3. Submit Your Application: Once you’ve chosen a bank, submit your application along with the necessary documents. The bank will assess your financial situation and, if everything checks out, give you a pre-approval letter.
4. Understand the Terms: Make sure you read and understand the terms of the pre-approval, including the interest rate, loan tenure, and any conditions you need to meet to keep the pre-approval valid.

Facts About Home Loans in Singapore

1. Loan-to-Value (LTV) Ratio: In Singapore, you can borrow up to 75% of the property’s value. The remaining 25% has to be paid as a down payment, with at least 5% in cash.
2. Total Debt Servicing Ratio (TDSR): The TDSR limits the amount of your gross monthly income that can go towards repaying all your loans, including the home loan, to 55%.
3. Mortgage Servicing Ratio (MSR): For HDB flats and Executive Condominiums, the MSR caps the amount of your gross monthly income that can be used to pay your home loan at 30%.
4. CPF Usage: You can use your Central Provident Fund (CPF) savings to pay for the down payment and monthly instalments of your home loan.
5. Interest Rates: Home loan interest rates in Singapore can be either fixed or floating. Fixed rates offer stability, while floating rates can change based on market conditions, often tied to the Singapore Interbank Offered Rate (SIBOR) or the Swap Offer Rate (SOR).

Conclusion

Getting pre-approved for a home loan is a smart and essential step in the home-buying process. It helps you understand your borrowing power, sets a clear budget, and can prevent potential financial pitfalls. D and A’s story is a great example of why this step is so crucial. By getting pre-approved, you can start your home-buying journey with confidence, knowing exactly where you stand financially.

In Singapore’s competitive real estate market, being well-prepared makes all the difference. So, before you start searching for your dream home, take the time to get pre-approved. It will save you from unnecessary stress and make the process much smoother and more enjoyable.

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