Getting a mortgage in principle is usually the first indication that you’re likely to get a mortgage. It’s a great idea to get an agreement in principle as it can give you an indication of how much you’d be able to borrow. You can then begin your property search with confidence and a budget in mind.
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What is a mortgage agreement in principle?
A mortgage agreement in principle is simply an agreement to lend funds based on an initial assessment. The assessment is based largely on your income, expenditure, credit score and your employment. This is not a formal mortgage offer and is simply a mortgage in principle based on the information you’ve provided.
An agreement in principle is often abbreviated to an AIP. A mortgage agreement in principle can also be called a decision in principle, or a DIP. A DIP and an AIP are exactly the same and just different by name.
You may be asked by estate agents if you have an AIP when you make an offer on a property. Your mortgage advisor can provide you with an agreement in principle once you’ve provided the necessary information your advisor has asked for.
If you’re aiming to purchase a property with a mortgage, having a decision in principle is very beneficial. We’ve outlined some benefits below:
- Gives you an indication of how much you can borrow.
- Allows you the confidence to make accurate offers on properties.
- Makes your property offers more credible and gives estate agents confidence.
- Able to provide an AIP fast to secure a deal, in cases where time is of the essence.
- Can place you in a stronger position than buyers who don’t yet have an AIP.
A mortgage agreement in principle is usually valid for either 60 or 90 days. Lenders and brokers charge different rates and fees to produce an AIP document.
How do I get a mortgage decision in principle?
If you need a decision in principle as soon as possible, make an enquiry and an expert advisor will call you back to arrange this for you. Your advisor can explain the process in greater detail by understanding your current situation. You may need an AIP urgently to secure a property or you may have had a mortgage declined. Even if you simply wish to know how much you can borrow, our advisors can help.
You can approach a lender yourself, however you will be limited only to the lender’s own products. Using a broker that is ‘whole of market’ enables you access to the best deals across the UK mortgage market. This is because whole of market brokers have access to every lender and aren’t limited to certain mortgage deals.
Will I need a credit check?
To get a mortgage DIP, you will need to undertake a credit check. It’s important to note that such credit checks can leave ‘footprints’ on your credit file. Not all credit search footprints are created equally. A footprint can either be ‘soft’ or ‘hard’.
A soft footprint can be seen on a credit report, however it doesn’t indicate that you’ve applied for credit, only enquired. On the other hand, a hard footprint indicates an application made for credit and this can have a negative impact on your credit score. As a result, numerous footprints for credit can lower your credit score and in turn hamper your chances of mortgage approval.
Even if you have a great credit score, it doesn’t mean to say you’ll be guaranteed a decision in principle. This is simply because lenders all have their own criteria in addition to checking your credit history. Other criteria can include income details, type of employment, mortgage type and deposit amount in addition to numerous other variables.
It’s highly advised to use a specialist broker from the start. This is to avoid making multiple applications with lenders which will eventually damage your credit score. Selecting the correct lender is vital in protecting your credit file and securing a great mortgage deal. Experienced advisors understand each lender’s criteria and can select the most suitable lender that is most likely to accept your application.
Will I need to provide documents for an AIP?
You will need to provide personal documents before you can be given an agreement in principle. Lenders and advisors have a legal duty to verify your personal circumstances and identity. For this to happen, you will need to provide some or all of the below documents and information:
- Photo ID (passport or drivers licence).
- Proof of address (utility bill, bank statement).
- Income details (3 months payslips minimum or accounts/SA302 documents).
- Expenditure (3 months bank statements minimum).
- Credit card statements (or statements of any outstanding debt).
- Proof of deposit (bank statement or signed confirmation for gifted deposits).
- Credit reports (if pending or adverse credit issues within last six years).
If you’ve found a property already, then your advisor will also need the details of the property, such as:
- Property type.
- Agreed purchase price.
- Build material (only if not of standard brick construction).
Your advisor will also need to know what type of mortgage you’d be applying for, such as buy to let or residential.
The difference between a mortgage offer and an AIP
An agreement in principle doesn’t guarantee that you’ll get a mortgage. It’s simply the first step in outlining what you’re likely to be able to borrow and whether or not you’re likely to be approved.
A mortgage is only offered formally once a mortgage survey has been carried out and you’ve undergone a full mortgage application. This doesn’t in any way make a decision in principle a pointless exercise, as the majority of estate agents will ask to see proof of an AIP. Getting an agreement in principle is usually considered to be the first step in getting your mortgage.
Can I still be declined if I have an AIP?
You can still be declined a mortgage, even if you’ve been provided with an agreement in principle. You may be declined a mortgage after an AIP in the following circumstances:
- Being unable to provide requested documents, such as proof of ID or bank statements.
- If the initial details you’ve provided are incorrect.
- You have too much outstanding credit/debt.
- The property doesn’t meet the lender’s criteria.
- Credit issues after the AIP and between the mortgage application.
If an advisor is managing your mortgage application, then they can ensure that all your documents are in order before applying. In addition, an advisor can also ensure that your application is structured in the right way to maximise your chances of being accepted.
My agreement in principle has been rejected
If you’ve been declined a mortgage, your lender or advisor should tell you why the application wasn’t approved. There’s a multitude of reasons on why lenders may decline mortgage application.
Our advisors are mortgage specialists and are used to dealing with ‘hard to place’ mortgages. If you’ve been declined, you can make an enquiry to see if there any lenders suited to your criteria.
If your AIP has been referred, it means that an underwriter is taking a closer look at your application. A referred decision is not the same as being declined. If this does happen, then your mortgage broker should try to iron out anything that the underwriter isn’t clear about.
I need an AIP fast
Having an AIP to show estate agents that your offer is credible can sometimes be the difference in your property offer being accepted or rejected. If you’ve seen a property and need to move fast, our advisors are on hand to help. You can make an enquiry below and an advisor will call you back to get some further information before an AIP can be provided.