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What Is A Mortgage In Principle?
A mortgage in principle is a document issued to a potential homebuyer by their mortgage broker or lender to show, in principle, the value of the home loan they potentially qualify for.
The document is not legally binding or a formal mortgage offer. Rather it is issued before starting your formal mortgage application.
The lender or broker uses the information supplied by the client at the time to estimate the potential loan amount they could qualify for when applying for a mortgage.
Why is getting a mortgage in principle important?
A mortgage in principle helps you plan for the future. It gives you an indication of how much your mortgage would cost and can help you budget for this long-term expense.
You apply for this document before starting your mortgage application process. It makes shopping for a new home much less cumbersome when you know what price range you should be looking for. This lands up saving you time, effort, and money.
If you give your mortgage in principle to sellers and estate agents, it proves that you are serious about buying a house. They’ll also be more willing to assist you. This is because they know that if you submit your mortgage application and get a mortgage offer, you will be able to afford the house.
How Reliable Is A Mortgage In Principle?
A mortgage in principle is a relatively reliable document, depending on the accuracy of the information you gave your mortgage lender.
The more honest you are with your financial situation, the more reliable the document. On the other hand, if you give incorrect information, the document might underestimate or overestimate the potential mortgage you qualify for. Thus, it can affect your ability to get an approved mortgage offer or to pay your mortgage payments.
A real value be given for the mortgage you qualify for can only be given after you submit your formal mortgage application. Your lender will then consider your actual income and expenses, credit history and other credit agreements before presenting you with an accurate number.
How To Get A Mortgage In Principle
Contact your mortgage broker, bank or building society, or apply online for a mortgage in principle.
What basic information do I provide on my application?
To start the application, your broker or lender will require the following information from you:
- Your full name
- Date of birth
- Address history (for the past three years)
- Your income and expenses
You won’t need to provide any supporting documents. However, these are required when you complete the full mortgage application process.
What information is used to calculate a mortgage in principle?
Your lender will look at the following information when issuing a mortgage in principle:
- Your monthly income
- An estimate of your expenses
- Your available savings
- Your deposit
- The price of the house
How long will it take to receive my mortgage in principle?
Most UK banks will issue a mortgage in principle in 1-3 days. Some lenders may even provide one immediately if you do an online application.
Remember that this is only an estimate of what you might qualify for. It’s not an accurate reflection of your loan amount and whether your mortgage will get approved.
How long is a mortgage in principle valid for?
Mortgages in principle are typically valid from 60 to 90 days, depending on the lender
They reflect your current financial situation. You’ll get an accurate mortgage amount after you have completed a more detailed questionnaire on your finances and credit history when submitting your mortgage application.
That said, if the information you provided is accurate, you can qualify and apply for a mortgage.
If you want to apply for a mortgage another day, you’d need to apply for another mortgage in principle. It will reflect your financial situation at that time. If your financial circumstances have changed, your mortgage in principle will also have changed.
What Happens After I Get A Mortgage In Principle?
If you are happy with your mortgage in principle estimates, follow these steps to buy your new home:
- Find the property you want to purchase
- Make the owner or estate agent an offer
- Apply for a full mortgage.
FAQs
Does applying for a mortgage in principle affect my credit rating?
Yes and no. When applying for a mortgage in principle, some lenders might do a soft credit search. A soft credit check does not leave a footprint and, therefore, does not affect your credit file or credit rating.
Should your lender do a hard check, it also won’t affect your credit file by much. However, multiple hard credit checks will leave a footprint on your credit file. This activity may make lenders think your credit applications were declined and affect their willingness to give you a home loan.
How does a mortgage in principle differ from an agreement in principle?
An agreement in principle (AIP) is a more accurate reflection of what you can afford. Sellers and estate agents prefer AIPs above a mortgage in principle as it shows the mortgage you are likely to qualify for and that you are a serious buyer.
How can I better my chances of getting an agreement in principle?
Use these easy tips to improve your credit score:
- Regularly check your credit
- Check for and immediately correct errors on your credit report
- Reduce your debt-to-income ratio
- Pay your bills on time and in full
- Avoid maxing out or using your credit card at ATMs
- Save all your extra cash
Conclusion
Mortgage brokers or lenders issue you with a mortgage in principle to indicate the potential value of the home loan you qualify for.
The document is not legally binding and does not constitute a mortgage agreement.
Your lender issues you with this document based on the basic financial information you provide. Just remember, it does not guarantee that you’ll get approved for a full mortgage.
A mortgage in principle is a great tool to help you plan, should you decide to proceed with your mortgage application process. It gives you an indication of the costs and instalments you’ll need to budget for.
Sources:
https://www.habito.com/hub/article/how-reliable-is-a-mortgage-in-principle
https://www.barclays.co.uk/mortgages/agreement-in-principle/
https://www.nationwide.co.uk/mortgages/decision-in-principle/
https://www.uswitch.com/mortgages/guides/how-long-does-it-take-to-get-a-mortgage/
https://www.mortgageable.co.uk/mortgages/reliable-mortgage-principle/
https://www.getagent.co.uk/blog/mortgages/how-reliable-is-a-mortgage-in-principle
https://www.moneysavingexpert.com/mortgages/boost-mortgage-chances/