What is a Mortgage Agreement ‘in Principle’ (AIP)?

You may have heard of a mortgage in Principle. We have discussed it before in other articles and obtaining a Mortgage in Principle is something we recommend. It certainly helps strengthen a buyer’s position when they are making an offer on a property.

What is a Mortgage in Principle?

First of all, it has several different names although in their basic form they are all pretty much the same thing. Many lenders refer to an ‘in principle’ mortgage offer as an AIP which stands for ‘Agreement in Principle’. Others call it a DIP (Decision in Principle).

Not all AIPs and DIPs are made on the same terms but the reason they exist is to allow potential buyers to get a realistic idea of just how much they are likely to be able to borrow given their personal circumstances and the mortgage market at that time.

How to get a Mortgage Approved in Principle?

To obtain an agreement in principle you will need to provide quite a lot of personal information. Furthermore, it’s important that the information you provide is accurate as this information will be the basis of the lender’s mortgage offer ‘in principle’ and any discrepancies may result in the offer being withdrawn entirely or changed.

An AIP is, in effect, a stepping stone process between initial contact with the lender and the selected lender’s final binding mortgage offer. It’s purpose is to guide the borrower and give some credibility to his/her offer when they find a home they want to buy.

The mortgage approval process and the house buying process in general can be quite daunting to the first time buyer. Not only can the process seem laborious and complicated, it can also be expensive and littered with requests for non-returnable bills!

In order to successfully buy the home of your dreams, it’s likely that you will need a mortgage. But how do you know what size mortgage you will need until you have agreed to buy a home? It can seem like a ‘Catch 22’ situation.

The best way to successfully buy that home you so want is to prepare beforehand and have secured a mortgage offer when you start your search. After all, the speedier your purchase, the less chance there is for the sale to fall through. Remember, in England and Wales your agreement to purchase is subject to contract and it can take several weeks to line up all the legal and financial formalities required before the sale proceeds to completion and you actually buy the house.

A mortgage offer ‘in principle’ is issued by your chosen lender after they have established the health of your credit history, checked all the details on your mortgage application and calculated both the maximum mortgage and Loan percentage they will accept. It is prudent to do this even before you have seen the home you want.

Once you have a mortgage offer approved in principle, you have something you can show to the estate agents considering your offer/s on property you are interested in buying. The ‘in principle mortgage offer’ offer tells the seller that you are serious, that you have the money available to buy at the price you have offered and you are likely to be able to buy quickly! Once your offer is accepted by the seller, your solicitor can be instructed to undertake a local search and contact your mortgage broker to put all the paperwork in place.

Without doubt, having a mortgage offer approved in principle will be very useful when your offering to buy the home of your dreams.

How long does an Agreement In Principal last?

It usually lasts between 30 and 60 days. We recommend that you obtain an AIP fairly early in the process so that you have a good idea how much you will be able to borrow and how much it will cost you. However, as AIPs do lapse, applying too early can result in your credit history showing more than one check and sometimes this can score against you. To read more click here.

What information do I need to provide for an Agreement In Principal?

Quite a lot! Effectively, it is your full mortgage application although the mortgage company won’t necessarily check all the information you provide until later in the process. They will cross reference the information you provide though, so make sure it is accurate and up to date.

What are the Advantages of having an Agreement In Principal?

There are several advantages to having an AIP with your lender. For a start, you now have a very firm idea of what you can afford to borrow and how much it will cost you. Furthermore, any estate agent you make an offer to can see that you are serious and that you have the money available to buy the property you are offering on.

In a competitive market this is critical. A seller is looking for speed and certainty as they are probably in a chain of other transactions and the last thing anyone wants is to spend weeks waiting for you to get your mortgage in place.

What if I don’t want to get an AIP right now - in case it expires before I find a home I like?

That’s a fair question. At Mortgage Required we can ask all the relevant questions early in the process and because we do this all day, every day, we can give you a pretty good idea how much you might be able to borrow. As the market changes and lenders change their terms and conditions we can reflect these in our advice to you so that when you are ready to make an application in principle - we are ready to proceed swiftly.

For more information contact us to speak to a mortgage adviser.

The Benefits Of Having An Agreement In Principle

When you speak to a reliable mortgage advisor, you can almost guarantee they will strongly recommend that you obtain an Agreement in Principle (AIP), also known as a Decision in Principle (DIP), whenever you’re searching for a new property to purchase. Simply put, an AIP is an indication of how much a mortgage provider is willing to lend you at this moment in time and whilst an AIP isn’t a binding mortgage offer, it can be really useful to have. There are several benefits associated with having an Agreement In Principle and below we have looked into some of these in more detail.

Get a realistic idea of how much you’re able to borrow 

Knowing how much you’re able to borrow from a mortgage lender would be really helpful when you first start browsing the property market and it would give you an indication of how much you’re able to spend on a property. Getting an AIP from a mortgage provider is one of the best ways to get a realistic idea of how much you could borrow at this particular moment in time, taking into account both your personal circumstances and the mortgage market. 

It’s important to be aware that the AIP you receive would be based on the information you provide during the application process. Therefore, to get an accurate mortgage offer, it is important to provide accurate information to a mortgage lender. To help prevent any issues when it comes to getting your formal mortgage agreement, once you have got your AIP, you shouldn’t change jobs or miss a loan payment either, for example, 

Start budgeting for your future 

It goes without saying that property is expensive and when you’re buying a new home, it is crucial to ensure you would be able to afford all of your monthly bills, including your mortgage repayments. Not only would an AIP give you a clear idea of how much you could afford to borrow, but it would also inform you of how much a mortgage would cost you on a monthly basis. You could use your AIP when you’re budgeting for future expenses and this could help to prevent you from getting yourself into financial difficulties when purchasing a property. 

Strengthen your position as a buyer 

The property market can be extremely competitive and in order to ensure you don’t miss out on your dream home, you need to prove to a seller that you’re a serious and credible buyer. Having an AIP would essentially confirm that you’re in a position to get the mortgage you need in order to purchase a property and this could work in your favour when you make an offer on a property. Ultimately, a seller would be more likely to accept your offer over another prospective buyer’s offer when they know you have an AIP. 

You need to be aware of how long your AIP lasts when you’re putting an offer in on a property though. Generally speaking, most AIPs last somewhere between sixty and ninety days, and you need to make sure you’re applying for one at the right time. Ideally, to prevent an AIP from having a negative impact on your credit history, you shouldn’t apply for it too soon, resulting in you having to reapply because it has expired. 

Speed up the purchase process 

Having an AIP could prevent you from needing to get a mortgage in place once your offer has been accepted on a property. If your circumstances haven’t changed since you completed the first mortgage application, getting your formal mortgage offer shouldn’t take long and you won’t be holding up the purchase process. Removing any obstacles from this process is highly recommended as it would reduce the likelihood of the purchase falling through and you having to start the whole journey of finding a perfect property again. 

Need Help with A Mortgage Agreement in Principle?

Ultimately, it is easy to see why all mortgage advisors recommend that you get an AIP before you start the home buying process and you will definitely thank yourself for listening to their advice. If you would like to get an AIP and you’re not sure where to start, get in touch with our team at Mortgage Required today. We can assist you with the process of applying for a mortgage in principle and we pride ourselves on providing a professional and efficient service. Our expert team is able to advise on all aspects of the mortgage market and we can answer any questions you may have about getting a mortgage. 

Related articles:

• What Credit Checks do Mortgage Companies do?

• How to get a Mortgage Approved in Principle?

• How much Deposit do I need to buy a House?