Introduction
In this blog, we focus on Mortgage Agreements in Principle and give you a really easy-to-follow overview of what it is and how long it lasts.
An agreement in Principle (AIP) is one of the first steps you might take before starting your journey to buy your home.
It is a written amount from a bank or building society (the lender) stating how much they may be willing to lend to you. It isn’t binding as there are a number of other factors they need to consider before offering you the final mortgage. However, it is a very good estimate for the amount you can probably borrow, which will allow you to start searching for properties within a realistic budget.
Agreement in Principle
Before you get started with your mortgage application, it is possible to apply for a mortgage “Agreement in Principle”. This is a speedy way of getting a good idea of the amount a lender may lend to you based on some basic information.
You can usually obtain this on the same day that you provide some high-level information on your current income. They will also run a credit check on you (and anyone else buying with you). It is not a guarantee that you get a mortgage approved for that amount, but it is a good place to start, especially if you want to get home hunting.
How long does a mortgage in principle last?
Your mortgage in principle can last between 60 and 90 days. This will give you some time to find a property and have an offer accepted on it. However, if you do not manage to find a property in that time, then you need to renew it.
Renewing your mortgage in principle is usually a straightforward process but can throw up challenges if your circumstances have changed in that time.
If during your validity period, your personal circumstances change, for instance your employment status, we recommend informing your broker or lender as soon as possible. These changes may null or void your application in principle and so it is worth making sure your application is still valid. This will save time and potential stress once you have found a property you wish to buy. Also read how long does a Mortgage application take.
When should I apply for a mortgage Agreement in Principle?
If seeking finance to fund your purchase, we recommend that you speak to your lender or mortgage advisor as a first port of call. It is always best to have a good idea of what you can afford before you start viewing homes on the market.
Not only will this mean you are searching for properties within your budget, but it will also help to improve your profile as a proceed able buyer when submitting an offer. Estate agents and sellers will usually assess your buying capability before accepting an offer. Having your agreement in principle in place at the time of submitting an offer, will help the seller and estate agent to have more confidence that you are able to proceed with the purchase. In a competitive market, this puts you in good stead to have your offer accepted. AS
Why should I apply for a mortgage in principle?
Seeking an agreement in principle is a much faster way of obtaining a good idea of the amount that you will be able to borrow. A full mortgage application will generally take a lot longer, typically between 4-6 weeks.
The mortgage in principle will mean that you will be able to house-hunt in the right price bracket that you can most likely afford, meaning you won’t waste time looking at properties that are outside of your affordability.
Why does the mortgage application process take so long?
The lender needs to carry out multiple checks on you as an individual but also on the property you have chosen to buy, and this process can take several weeks. It is something you would look to do once you have found a property you wish to buy.
For a quick guide to take you through the 7-steps of buying your first home, click here.
For the formal mortgage application, the process is a lot longer due to the additional information that they need to assess if they will lend on the property in question. At this point they may require:
- 3 months of pay slips, bank statements, self-assessment returns (if self-employed)
- Details of your outgoings, including childcare costs
- Proof of ID and address
- Proof of deposit
- Details of your solicitor
Once you have sent these over, the lender will also look to carry out a mortgage valuation survey of the property. This process can also take over a week whilst you wait for the surveyor to visit the property (if required) and to report back to the lender. This basically tells them that the property they are lending you the money for is worth the amount you’re paying.
Benefits of applying for a mortgage in principle
We strongly recommend that applying for a mortgage in principle is the first thing you do once you have decided to buy a home.
Here are some of the benefits to having a mortgage in principle before you begin your search:
Affordability
A mortgage in principle will give you a really good guide as to the amount you can afford to borrow based on your earnings. This will give you an idea of the total budget of the property you should be looking for.
Timing
Having an agreement in principle in place, saves you time at the stage you need to move fastest. Once you have found a property you want to buy, you need to move quickly in order to meet the seller’s timescales. If you already have a mortgage in principle agreed, then it saves you time searching for a lender or mortgage advisor. Plus the lender or broker will already have some initial information on your current income which also saves time.
Ability to proceed
The mortgage in principle lets sellers and estate agents know that you can realistically afford the property and will take you seriously when it comes to the stage of putting an offer forward to buy your chosen property. Some lenders will issue a mortgage in principle certificate that you can send to estate agents if required. If you are working with a broker, which we highly recommend, then they can call the agent to confirm your position.
Successful mortgage application
Applying for a mortgage in principle first, helps you be successful when applying for the mortgage application. By showing you what you can realistically afford to borrow, you will then be able to apply for a mortgage that you will more likely be accepted for. If you apply for a loan that is too large for your earnings, you will likely be rejected. It is always best to avoid being rejected for a loan as they could have a negative impact on your credit history, making it harder to be successful in your mortgage application for the next attempt.
Does applying for a mortgage in principle affect my credit rating?
This leads us nicely to look at credit ratings and how applying for a mortgage in principle could impact this.
When applying for a mortgage in principle, a credit check is required. The lender you are liaising with may run a credit check as a “soft” or a “hard” search.
A soft search simply checks against your file without leaving a ‘footprint’. As this check won’t be visible to other lenders, it shouldn’t affect your credit file.
A hard search shows on your file as an application for credit. While the hard search itself shouldn’t affect your credit rating, if a lot of hard searches are made on your file within a short space of time, lenders looking at your credit history later for your full mortgage application may think you’ve been rejected for credit several times and choose not to lend to you.
It’s always a good idea to ask what type of search the lenders will carry out on your behalf. If using a mortgage broker, they will already know this and may be able to more effectively control this process.
To speak to us about using a mortgage broker, get in touch with one of our team today.
How do I apply for a mortgage in principle?
You can apply for a mortgage in principle by one of two ways:
- directly with a lender (bank or building society)
- a via a mortgage broker
mypropertyadvice.com advise that it is usually best to use a mortgage broker, however this is of course subject to you and your personal circumstance. Since the broker will have access to a greater range of mortgage products that are visible on the high street, they may be able to find you a better deal.
Why use a mortgage broker?
A mortgage broker is usually well versed in scanning the entire market for the very best mortgage deals that are specifically available to you based on your circumstances. Not only are mortgage brokers familiar with the different products on the market, but they have access to mortgage deals which are not available to you as a retail customer. So although there may be a small arrangement fee involved when using a broker, the saving they could achieve for you could be significant.
Working with banks and lenders can be a challenging process that requires a lot of paperwork and chasing them for answers. Having a broker that has a direct relationship with the individuals in the company saves you sitting on hold and going through call centers too.
Does a mortgage in principle cost anything?
Applying for a mortgage in principle does not usually cost anything as the lender will not usually charge you at this stage. If a mortgage broker is charging you directly, they will likely only charge you once your mortgage deal has been arranged.
What information do you need to apply for a mortgage in principle?
Your lender or mortgage advisor will require some preliminary information on you, such as:
- Income
- Outgoings
- Employment status
- Credit history
- Deposit amount
More specifically, you may need to provide:
- Income information – pay slips, bank statements, company accounts (if self-employed)
- Outgoing information – debts, bills, subscriptions
- Previous addresses – backdated 3 years
Why would I be rejected for a mortgage in principle?
It is important to always provide accurate information to make sure you are not rejected when applying for a mortgage in principle. However, there are multiple reasons you may be rejected:
Your income is too low
Your employment is too unstable
Your deposit is too small
You have changed jobs too recently
Your spending exceeds your income
Your existing debts are too high
Your credit score is too low
Your application contains incorrect information
Remember, even if you are successful with your mortgage in principle, your lender could still reject you for your mortgage application. The information and credit checks a lender needs for a mortgage application is more stringent and so it could throw up reasons for them not to lend.
But, it is not the end of the world if you are rejected! The mortgage in principle application is like a dry run for when you apply for the formal mortgage application. So it gives you the chance to iron out any potential issues for when you apply for the mortgage application.
To avoid rejection, it is always a good idea to speak to a mortgage advisor. Click here for more info.