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. So 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 do I Obtain an Agreement In Principal?

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will be the basis of the lender’s mortgage offer ‘in principle’ and any discrepancies may result in the offer being withdrawn entirely or changed.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.

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.

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.

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