Owning your dream home is a great feeling and a lifetime aspiration for many. It needs a lot of planning and research. After all the effort you put in and finalize your dream home if you realize that you are not eligible for the home loan, it is frustrating and devastating.
Fortunately, this can be avoided with a little effort from your end. Banks now offer an IPA to avoid such last-minute surprises of owning a home. Here is a detailed write-up on what an IPA is, the process of procuring one, it’s importance, benefits, and risks. Having an IPA in hand upfront will make your home finding aspiration a lot less stressful and easy. Read on to find out more.
What is an IPA?
IPA or In-Principle Approval is a document given to prospective homeowners by mortgage lenders or banks with an estimate of how much loan they can procure. Once you apply for an IPA, the bank evaluates your financial strength, creditworthiness, and other factors and reverts with an approximate amount of loan you can procure as a home loan when you apply one eventually. As the name goes, it is ‘In-Principle’ and not an actual loan approval. Every potential home owner should start the whole home searching process from this step. This will give you an estimate of your eligibility and help you define your budget for a home in a more scientific and informed manner.
What happens in an IPA evaluation process?
As the first step, you will need to submit the required documents to the bank for review. The bank then evaluates these documents for authenticity and verifies the information for your creditworthiness. They also evaluate the repayment capacity and history based on the documents you provide. The documents required are almost the same as applying for a loan.
This is a good thing, as when you apply for an actual loan, once you find your dream home, the required documents are already available with the bank and this speeds up the process. The criteria and the documents required for the approval can differ from bank to bank. Your credit records and the records of loan repayment will all be checked. The MSR, TDSR, Income weighted average,stress test and financial assets value will all be taken into consideration
The only thing that the bank needs to verify is the property documents for the final approval.
How long does it take to get the IPA?
In most cases, IPA takes around one day to get processed. The process can take longer depending on the circumstances. With certain banks, the time can range from one to two weeks.
Validity of the IPA
The validity of the IPA can vary from 14 days to 3 months. In most cases, 90 days is the norm.
Why is it Important?
It is important and critical to get an IPA before you start the rest of the steps in your home loan procurement. An IPA gives you a more realistic and manageable estimate of your mortgage. You can then look for properties that are closer to the estimate. This not only saves critical time while applying for an actual loan but will also make the probability of rejection a lot lesser.
An IPA also safeguards you with the bank. Once the bank verifies and provides an estimate of your eligibility, you will have a better position for loan approval as compared to people who do not. The possibility of your actual loan approval amount varying too much from the IPA is also reduced because of this.
Benefits of an IPA
An IPA helps find the best property for you. The property market is flooded with options and can get pretty chaotic. By understanding your home loan options better with an IPA, you can choose the one that falls within the boundaries.
The IPA is also a tool for faster processing of your application. Since most of the verification process, regarding your eligibility and creditworthiness, is already complete, the only thing left is to verify the property documents. This speeds up your application and approval process and helps in getting the keys to your dream home faster.
Property dealers prefer an IPA as well. This is proof for property dealers that you are good with the money and the possibility of striking a deal is much higher. They would be assured of the money because you already have an IPA. Most importantly, an IPA positions you better at the negotiation table with property dealers. With the added advantage of assured money in a short time, you can ask the property dealer to reduce the overall costs.
Risks of not having an IPA?
Not procuring an IPA places you at a disadvantage in many ways. Not only do you lose all the benefits of it upfront, but there are also risks that you will have to address.
The most important of the risks is that your application after short listing a home may be rejected. This can be due to various reasons. Having an IPA clears you of all the risks about creditworthiness upfront.
It also saves you from spending too much on a home loan. Without an IPA, you start with a disadvantage and in the dark about your eligibility and costs of a home loan. Without this clarity, you are at the risk of spending beyond your ability and paying mortgage beyond your capacity. An IPA protects you against both these risks early in the process.
You may also face the situation of good property agents avoid you with an IPA. Most property agents would like to see customers with creditworthiness and make good of their time. Without an IPA, you risk missing out on a property that you may like, as the agent is not willing to work with you.
You may lose the deposit that you have put in. When you usually wish to secure a house, you pay a booking fee. This fee can be lost if you don’t have an IPA. Say Mr. X booked a house worth $1.5 Million and paid one percent of the total amount as the booking fee. This will amount to $15000. This is a considerably large amount. If Mr. X doesn’t have IPA, and the bank says that it is willing to lend him only half the amount required, he will end up losing out on the home as well as the booking fee. He may not even be able to pay for the next best alternative if he is on a tight budget.
With an IPA you stand a better chance of striking a good deal with the bank and the property dealer. It protects you from buying something beyond your means and help in making your property buying experience seamless. Not having an IPA will not only make this whole process cumbersome and tedious, but it can also throw up potential blows in terms of eligibility and creditworthiness.
Buying your dream home is a lifetime aspiration. Living in it should be about the memories of the great times you had with friends and family. It should not be about worrying about how to pay the mortgage every month. An IPA is, therefore, a critical aspect to make your dream home a seamless project not only while buying it, but also while living in it with your family. Make a wise choice.