A mortgage in principle also commonly referred to as ‘decision in principle’ or ‘agreement in principle’ is essentially an approximate estimate in writing confirming how much a mortgage lender is willing to lend a mortgage applicant. This usually acts as evidence to the estate agent that you are a committed buyer who has the means to make a realistic offer. Further to this, before viewing a property – an estate agent will typically ask that you obtain a decision in principle.
When you apply for a mortgage in principle, the lender will carry out checks against your credit file to establish whether you will be eligible to borrow from them.
An agreement in principle is useful in knowing how much lenders are willing to allow you to borrow which is certainly an advantage when viewing properties. You may find out that you could borrow more than you anticipated or that you should scale back on your budget.
Having a decision in principle also provides the estate agent and vendor confidence that your offer holds credibility and that obtaining finance for the purchase will be viable. This will also help in maintaining a strong negotiating position especially if competing offers are not backed up by a mortgage in principle.
In addition to this, a mortgage in principle will determine the price range an individual should be considering when viewing houses. It will also give you a clear idea of the deposit required, your monthly mortgage payments, your affordability and your limits.
An agreement in principle will commonly last between 60-90 days, this varies between lenders so you may want to contemplate getting one that lasts longer if you are still in the early stages of house hunting.
It is helpful to note that AIP’s can be renewed however the lender may need to conduct a hard search. An agreement in principle usually involves a soft search which means there is no impact on your credit score. With that being said, too many searches done by multiple lenders can affect your credit score.
This will vary from lender to lender, however most mortgage in principles will come back the same day but some can take a few days or even longer. This is provided you have all your information on hand.
Mortgage in principles are typically regarded as reliable however they are only an estimation. The lender’s criteria, your financial situation and deposit level can affect the amount.
Nonetheless, you can typically rely on being able to purchase a home similar to the amount stated on your mortgage in principle. Just remember to consider, deposit, and moving fees into your purchase.
It is important to note that the amount on the mortgage in principle is an upper limit, do not stretch yourself out financially by aiming for the top end of your limit.
You should remember that an agreement in principle is simply an indication of the amount a lender is willingly to lend you provided that nothing significant changes between now and when your mortgage application is submitted.
These are the most common reasons for a decline:
To attain a decision in principle, you will need to gather some personal information.
You will need:
You’ll also need to approach a mortgage lender directly or through a mortgage broker. You will not be required to go through the full mortgage application process, however this will need to be done when you have placed an offer on a property and it has been accepted.
Looking to buy a property as a second investment or first time buyer? Speak to one of our award winning brokers on 0800 32 88 680 today. We have specialist advisors available to assist you with your mortgage needs.
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