Getting a Mortgage in Principle
Even though an Agreement in Principle (AIP) isn’t required, some agents will insist that you have one. An AIP is a written estimate from the lender, giving you an indication of what you could borrow, and can be really helpful in your property hunt.
What it is
An Agreement in Principle (AIP), also known as Approval in Principle, Decision in Principle, Mortgage in Principle, or a Mortgage Promise, is a written estimate from a lender stating what you might be able to borrow. You can usually get an AIP within 24 hours and it is normally valid for up to 90 days.
What it isn’t
That means, when you have found the property you want buy, had the offer accepted and want to start the house buying process, you will still need to make a full application for a mortgage. If you applied for your AIP through a mortgage adviser, they should be able to use the information you provided to them previously as part of the full application process, but they will want to check that it is still correct.
An AIP doesn’t guarantee your loan since it’s not a mortgage offer. And, if the lender finds something you haven’t mentioned before that negatively impacts your ability to get a mortgage, they could change their mind about whether they will lend to you, how much they would lend and what the interest rate will be.
Why get an Agreement in Principle?
Although AIPs are not essential, they are very useful. Why?
AIPs can give you a better indication of the amount you could borrow – provided there is no major change in your situation when the time comes to complete your full application.
It can also be reassuring to know whether a lender is prepared to lend to you – especially if you’re concerned about your credit record.
An AIP shows you can actually afford the property you’re interested in and so gives you more credibility with estate agents and vendors. This is especially useful in competitive areas where things move really quickly – and agents appreciate knowing you’re in a position to move ahead if your offer is accepted.
Arranging an AIP also requires some effort on your part, which helps you come across as a committed and serious property hunter.
The house buying process is a bit different in Scotland. Before you can put a bid on a property, you often need an AIP for you offer to be taken seriously.
Things to be aware of:
An AIP can impact your credit score
As part of getting an AIP the lender or adviser will have to run a credit check (with your consent). If the lender runs what’s known as a “hard check” it will leave a “footprint” on your credit record.
This could hurt your credit rating if you apply for several of these within a short period of time. Luckily, some lenders will use a “soft credit check” for AIPs which doesn’t leave a footprint. Just check with your chosen lender which approach they use.
How to get an AIP
As with a full mortgage offer, you can either apply through a mortgage adviser or direct with a lender.
The adviser or lender will need basic personal details, as well as information on your income and expenditure.
At this stage, they may not require supporting documents like proof of your income, but it will be useful to have these available just in case. It’s also likely that they won’t go into as much detail about your expenditure as they would with a full mortgage application. Nevertheless, it would be useful to have some key details handy (for more information, see submitting your application).
For many borrowers, it can be done in a matter of minutes after the initial fact-finding which will involve gathering some initial information – as well as reviewing your credit history.
If the lender or mortgage adviser needs any extra information or documents they should get back to you within 24 hours.
An AIP tends to be free, but there are advisers who charge for this. Make sure you double-check before asking for one.
What can impact the full mortgage application?
Since an AIP is not a guarantee that you’ll get a mortgage offer, it’s good to know what factors may impact the lender’s decision when it comes to the full application.
Anything that changes your personal circumstances, reduces your income or increases your outgoings may impact how much you can afford to borrow.
For example, if you lose or change your job, take out a personal loan, your family situation or number of dependents changes, or you go on maternity leave. In turn, these may affect whether you can get a mortgage.
This involves the lender becoming aware of information you didn’t tell them for your AIP that can also affect what you can comfortably afford to borrow. For example, you have started a new job.
Your own circumstances might not have changed, but the lender’s decision will also depend on whether they consider the property you’re interested in to be suitable for them to lend against. This depends on the criteria of each lender.
For example, some lenders will only approve mortgages on a certain number of houses or flats within a particular new-build development. Other examples could include if it’s an unusual building that needs extensive renovation, or if the property has increased risk factors, like being prone to flood or subsidence.