What is an Agreement in Principle and do I need one?

So you’re thinking about buying a place of your own? It’s a complicated process, knowledge is power, and it really helps if you understand the ins and outs of every aspect of the procedure properly. Here’s what you need to know about a mortgage in principle, whether you need one, and how to get one. 

What is a mortgage agreement in principle?

A mortgage agreement in principle is also called an AIP for short, and sometimes called a ‘decision in principle’, ‘agreement in principle’ or ‘mortgage promise’.  It’s actually a ‘certificate’ that shows you how much money your lender is happy to hand over so you can buy a home or investment property.

An AIP is useful because it makes a lot of sense to know roughly what you can borrow when you go house hunting. There’s not much point spending time and effort viewing places you’ll never be able to afford, for example, and it’s also important not to restrict yourself unnecessarily just because you’re not sure how much cash you’ve got to play with. Once you know for sure, your search for a place to buy will be a lot more efficient and effective. 

Remember there’s no guarantee 

A mortgage agreement in principle isn’t a guarantee. Just because a lender says they’ll lend you an amount, it doesn’t mean that’s what’ll happen. They might decide not to lend you a penny. To know for sure what you can actually borrow, you need to make a full and complete mortgage application, and wait until you’re given an actual mortgage offer. The final sum can easily differ from the original decision in principle.

Can you do without an AIP? 

An AIP isn’t a must, and there’s no law saying you have to get one. In fact any good, experienced mortgage broker should be able to give you a decent idea of roughly how much you’ll be able to borrow without needing an AIP.  Having said that, some estate agents tend to see people who have a mortgage in principle in place as more serious and more organised, buyers who are likely to move fast, decide fast, and buy fast.

What do you need to do to get a mortgage agreed in principle?

The most popular question asked is what do i need for a mortgage in principle? 
A mortgage broker is your best bet. You need impartial, good quality mortgage guidance from someone who is qualified to advise you. Some brokers have access to the entire mortgage market, able to choose from a vast range of products and deals. Others deal with the products of just one or a handful of providers. Whoever you choose, they’ll ask basic questions about your situation, arrange a credit check, and pin down a suitable lender for you. 

Can you be turned down altogether? 

The lender has one priority – to make sure you can pay back the money they lend you. Part of this due diligence process involves assessing how well you’ve dealt with debt in the past, so having a County Court Judgement against your name, or bad debt, or any other credit issues, will affect the loan you can get. If you have a bad debt record, a lender might turn you down altogether or charge you a higher interest rate than someone who manages debt better than you. 

How long does a mortgage in principle offer last?  

Because people’s circumstances can change with the blink of an eye, a mortgage agreement in principle is usually only valid for anything between 30 and 90 days. You could lose your job, for example, or fall critically ill. But don’t worry. As long as nothing has changed, the lender should be happy to extend the agreement for you.   

One thing to remember…

Mortgage agreements in principle involve credit checks, and while two or three credit checks in short succession shouldn’t affect your credit score, lots of checks in a row might look suspicious and have a negative impact on your credit score. It’s probably safest not to ask multiple mortgage brokers to search the market for AIP deals for you at the same time. 

Contact the team at Prospect Tree Mortgages If you need help finding out how much you can afford to borrow or require a mortgage agreement in principle certificate quickly. We are available on 0800 8620 840 or use the contact form on our website.