Mortgage in Principle: What to Know About This Agreement
Having a mortgage agreement in principle in hand when you offer on a property can be a big boost in the eyes of the seller.
If you’re looking to buy a property in the UK, one of the first things eager buyers do is arrange a mortgage agreement in principle, or a decision in principle, or agreement in principle.
This is when a lender gives you an indication of the amount you might be able to borrow, based on your income, debts and spending, without you applying for a mortgage. The mortgage lender also looks at your credit record to get an idea of how attractive you are as a borrower.
Your agreement in principle will show the maximum amount they would be content to lend to you, in theory, should you go forward with a formal mortgage application.
Why is a mortgage in principle important?
Having an agreement in principle in place will help you when making an offer on a property, for a couple of reasons.
First, just having one shows that you are serious about wanting to buy a home, rather than merely dipping your toe in the water to get a feel for the state of the market. Second, it provides a level of credibility to any offers you make on a property, as the vendor will have some confidence that you can afford the property.
Both of these factors will make you a more attractive buyer and improve your chances of having a bid accepted.
That said, it’s important to remember that it is simply an agreement to lend to you in principle. It isn’t a guarantee that when you make a full mortgage application you will be approved.
» MORE: Am I eligible for a mortgage?
How do I get a mortgage agreement in principle?
You can apply for one directly with a mortgage lender, or if you are using a mortgage broker they can arrange the agreement in principle on your behalf.
You will need to provide some basic information, including your name, date of birth, address history for the past three years, your income, any credit agreements you might have and an overview of your monthly spending.
The rest of the information the lender needs about you, it will take from your credit report. You can often put in for an agreement in principle online and get a decision straight away.
» MORE: How much mortgage can I afford?
How long is an agreement in principle valid for?
This will vary according to the lender, but is often 60 or 90 days, so if you still haven’t found the right property after this point you may need to renew it or get another one.
Will a mortgage agreement in principle impact my credit score?
This will come down to how the lender searches your credit record when assessing whether to grant you an agreement in principle.
Some lenders will perform a ‘soft’ search of your credit record when considering whether to give you an agreement in principle. As a result, this will leave no mark on your credit record and so will not impact your score at all.
However, other lenders will perform a ‘hard’ credit search, which leaves a footprint on your credit record. If you have too many footprints in a short space of time, it may suggest to lenders that you are in financial difficulty and make them less likely to accept your application.
Find out what sort of search the lender will be carrying out before going ahead with an agreement in principle.
Can I offer on a property without a mortgage in principle?
There is nothing to stop you from making an offer on a property without a mortgage in principle.
But you likely will be less attractive to a seller than an interested buyer who has an agreement in place, as they cannot be sure you really have the funds to go ahead with the purchase.
Do I have to use the same lender for my mortgage?
There is no requirement to use the lender that provided the agreement in principle when the time comes to apply for a mortgage.
So once your offer has been accepted, search the market again to determine which mortgage best meets your needs, and don’t be afraid to apply for a home loan with a different lender, so long as you are confident you meet their lending criteria.
» MORE: How to apply for a mortgage
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more