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Why Do You Need a Mortgage Agreement in Principle?
If you are getting ready to buy a house or property, you have probably heard about a mortgage Agreement in Principle (AIP) by now. It is an important step before you make a full mortgage application.
Also known as a mortgage in principle (MIP), decision in principle (DIP), or Mortgage Promise, an agreement in principle is a written estimate from a lender, outlining how much of a loan they may be willing to lend you if you decide to buy a property.
The main reason for getting a mortgage in principle is to give you a clearer idea of what you can afford. This means you can look at properties in your budget range and get closer to making an offer.
Many sellers and estate agents generally take you more seriously if you have an AIP in hand. Without one, you’re left guessing about how much you can afford. Viewing properties may be a bit complicated because homeowners and estate agents typically prefer serious buyers who are in a position to proceed with buying the house.
From their point of view, they might have several people looking at the house, but some might not be financially ready to make the purchase.
By taking that first step and getting a sense of your budget and which lender is likely to approve you, sellers and agents have confidence in your ability to buy. They might even prefer you, as a serious buyer, over those without a mortgage in principle.
When Should You Get an Agreement in Principle?
The ideal time to get a mortgage in principle is before you start actively searching for properties. This is because most estate agents will ask you if you already have one, as it helps them identify if you’re ready and prepared to buy a home.
If you’re still in the early stages, exploring your options and figuring out what you can afford, you don’t need to rush into getting an AIP. In this case, you can simply ask a lender to provide an estimate of what they might be willing to lend you.
Ultimately, an AIP will come in handy when you’re ready to visit properties with the intention to buy or if you’re thinking about remortgaging a property.
But, life can be unpredictable, and your circumstances may change. If that happens, don’t worry; you can update your mortgage in principle to reflect your current situation.
What Information Do You Need for an Agreement in Principle?
There is certain information you’ll need to provide when you apply for a mortgage in principle. Lenders and advisors need to confirm your personal details, identity, and circumstances. This is all part of the process and you’ll typically need the following:
- Personal details
- Address history
- Income and monthly expenses
- Outgoings and existing credit agreements
With this information in hand, the lender will be able to determine the maximum amount they would be willing to lend you ‘in principle’. They will then provide you with a letter stating this amount.
Getting a Mortgage in Principle: A Quick Step-By-Step Guide
To help you navigate the application process, here’s a quick step-by-step guide to getting a mortgage in principle:
1. Choose your path
First things first, you’ve got two options. You can either go directly to a mortgage lender or reach out to a mortgage broker. The direct route might seem more straightforward, but it can be a bit slower, and your mortgage choices may be somewhat limited. It doesn’t mean you’re locked in with that lender, though.
On the other hand, if you go with a mortgage broker, you’ll have access to more mortgage deals to choose from, tailored to your unique situation and finances. Plus, they can often range a mortgage in principle in just a few minutes.
2. Find your lender or broker
If you’re opting for the direct approach, find a mortgage lender to approach for an Agreement in Principle. Typically, AIPs are free, but it’s never a bad idea to double-check. If you’re going through a broker, they’ll recommend a lender that suits your needs.
3. Clarify the credit check
Once you have chosen a lender or broker, check whether they plan to use a soft or hard credit check.
When you’re in the process of applying for an AIP, you’ll likely be asked for permission to run a credit history check. It’s an important step, and understanding whether it’s a ‘hard’ or ‘soft’ credit check is crucial.
4. Gather all the essential documents
You’ll need your basic personal details, along with information about your income and expenses. Documents like proof of salary might not be required at this stage, but having them on standby is always a smart move.
5. Start your application
Once you’ are ready, begin your application. This process is pretty straightforward, and you’ll only need to go into detail with your documents for your official mortgage application.
FAQs
What is the difference between a mortgage offer and a mortgage in principle?
A mortgage in principle is an initial estimate from a lender on how much they might lend you. On the other hand, an official mortgage offer is a confirmation from a lender that they will provide you with a mortgage for a specific property. To get this, you’ll need to complete the full mortgage application and meet all the lender’s requirements.
Does an agreement in principle affect your credit score?
Typically, a broker or lender will carry out a ‘soft’ credit check with credit reference agencies. A ‘soft’ credit check will not affect your credit rating. However, when you apply for a mortgage, lenders will generally run a full credit check which will leave a footprint on your credit report.
Sources:
https://www.money.co.uk/mortgages/how-to-apply-for-a-mortgage-in-principle
https://www.bankrate.com/uk/mortgages/mortgage-agreement-in-principle/
https://www.comparethemarket.com/mortgages/content/mortgage-agreement-in-principle/
https://www.onlinemortgageadvisor.co.uk/mortgage-application/mortgage-decisions-in-principle/
https://www.forbes.com/uk/advisor/mortgages/mortgage-in-principle/