If you’re currently engaged in the house-hunting process, you may have been told you need a ‘mortgage in principle.’ But what is it? And how can you get one? In this mortgage guide, we will go into more detail on everything you need to know about a ‘mortgage in principle,’ so keep reading to understand more.
What Is A Mortgage In Principle?
A mortgage in principle (MIP), also known as an Agreement in Principle (AIP) or Decision in Principle (DIP), is a written indication from your bank or building society telling you how much they are willing to lend you. The document will usually come in the form of a certificate or written statement and is issued before you make a full mortgage application.
The agreement in principle AIP is not a binding document – lenders can still refuse you mortgages on the terms they have set out – but it’s a useful indicator of what you could potentially borrow. The decision in principle is to also proof to any estate agent that you are a serious buyer and that any offer you make on a house is a realistic one. This will put them at ease when you’re they’re discussing available properties with you. When you come to put in an offer they will know you are good for your money.
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Do You Need A Mortgage In Principle?
It might be that you’re asking yourself why you need a mortgage in principle and not a full application. Surely it would be easier to go ahead and apply for the actual full application instead. Well, while a mortgage in principle isn’t compulsory, there are some very good reasons why you should apply for one. These are as follows.
You will have a clear idea about what you can afford
Your head must always rule your heart when you’re house hunting. It’s no good making a bid for a house that you won’t be able to afford, and the agreement in principle will give you a clearer idea of your potential buying power. This might mean the need to scale back your search and look for houses that are cheaper than those you have already considered. On the other hand, you might find that you can afford a better home than you previously imagined, so you might be able to look at properties within high price brackets.
This is all down to your personal circumstances and financial situation. A fee-free broker will be able to let you know how much you could borrow, find you the best lender and get you the best mortgage deal when you come to buy a property.
YesCanDo has a team of fee free mortgage advisers ready to get you an agreement in principle underway today.
Do you need a mortgage in principle to make an offer?
Property sellers will take you more seriously
We have already spoken about your added credibility when approaching estate agents, but the same applies to house sellers too. They might feel better about doing business with you if you can evidence your ability to meet their asking price.
How reliable is a mortgage in principle?
You can reduce the risk of a mortgage rejection
When you know what you are realistically able to borrow, you will be unlikely to apply for a mortgage that you can’t afford. This will reduce the chances of a mortgage rejection. Not only is this good for your peace of mind, but it’s good for your credit file too, as rejection could affect your credit rating. This will make life harder for you when you make future mortgage applications.
On this point, we do recommend finding out more about your credit score and credit history as soon as possible. You can do a credit check through credit reference agencies, such as Equifax and Experian. When you get a credit report it will usually be scored from 0 to 999 and will be categorised as either Excellent, Good, Average, or Poor. If your rating / credit report isn’t as good as you hoped, now is the time to improve your credit rating before you complete a full application.
YesCanDo has a team of fee free advisers ready to make sure your application process is as smooth as possible.
When Should You Get A Mortgage In Principle?
Having established the benefits of a mortgage in principle, this might be the next question you ask yourself. In theory, you should apply for one as soon as possible. Aside from the benefits we listed above, it will also give you the incentive to move forward with earnest in your property search.
The agreement in principle can also save time in the buying process. You are more likely to get your offer accepted if you have this written statement to hand, and you will also speed up your mortgage application process. Find out here: how does long a full mortgage application take?
However, before you do apply for an agreement in principle, you should do the following.
Things to do before you apply for an agreement in principle.
– Make sure you are on the electoral roll. If you have had voters cards delivered to your address, this is an indication that you’re already on it. But if you’re in any doubt, speak to your local council office. You will have big problems obtaining a mortgage if you aren’t on the electoral roll, so make this a priority.
– Get your financial house in order. Take steps to improve your credit score, get rid of any overdraft, and consistently pay your loans on time. When there are minimal financial discrepancies, you will reduce the chances of your full application being turned down.
After doing both of these things, begin your search for a mortgage lender or broker for your mortgage in principle application.
How To Get A Mortgage In Principle
Getting a mortgage in principle is not a difficult thing to do. You can get one from any mortgage lender (bank or building society) or broker.
YesCanDo Money can create and provide a mortgage agreement in principle for you within 24 hours for free, so get in touch with us to find out more about our services.
It is often better to use a free mortgage broker such as ourselves, as we have access to a greater range of rates and deals than you would find on the high street or online. We can help you access the best mortgage deals and rates, so you won’t have to waste a lot of time shopping around.
What You Will Need When Applying For A Mortgage In Principle
When getting an agreement in principle, you will be asked similar questions to when you apply for a full mortgage application. Your mortgage lender or broker will ask you several questions when applying for a mortgage in principle. These will cover such areas as your income, your spending, your credit history, and possibly the type of work you do. Typically, you will need the following information as evidence of your answers.
You will be asked for income information which will include but not be limited to such things as payslips and you past 3 months bank statements.
If you’re self-employed then you will need to provide your last 3 years accounts. What you are asked for will depend on your personal circumstances and will differ on a case by case basis. All lenders require different information which is why a broker is important as they will help you search through the best lenders and each of the lenders different criteria.
You will also be asked about how much savings you have and the source of your savings.
Records of your spending
You will need to provide your bank statements and other records of your spending, such as your credit card statements, utility bills, and details of your subscriptions. This is to check for suitable affordably to see if you can financially afford the mortgage.
You will be asked for a list of all your credit agreements. This is because a mortgage is a loan therefore you need to have a good credit rating and history.
You will be asked for proof of ID which is usually either your driving licence or your passport. You will also be asked for your last 3 years of address information.
The above are all things you will need for your full mortgage application anyway, so it is good to have this information at hand in readiness.
Can you be turned down for a mortgage in principle?
Unfortunately, you can be declined. Reasons for rejection include:
- A poor credit score or past credit issues (credit check your credit file here »)
- Unreliable income
- Out of control spending or being credit hungry
- A lot of debt
- An incomplete or inaccurate application
As frustrating as being rejected can be, it will give you the chance to iron out any possible problems. Not only will this help you when next applying for a mortgage in principle, but it will help you when applying for a mortgage too.
Please note: Even if you do get a mortgage in principle, this is no guarantee that you will be accepted on your full application, as there will still be criteria you will need to meet. However, as we have already discussed, the chances of you being rejected for a mortgage will be reduced, as you should have a clearer idea about the size of mortgage you need to apply for.
Speak to YesCanDo for fee free advice, a smooth application process, and the mortgage offer you are aiming for.
What happens when you have a mortgage in principle?
Once you have your agreement in principle, you can begin your search for a suitable property. There is no need to rush, as you usually have about three months before it expires. This might be ample time for you to speak to estate agents and home buyers, but if it does expire, you can still approach your mortgage broker or lender for another one. However, if you are asking a lender for a new MIP regularly, you need to be aware that it might hurt your credit score if they carry out a hard credit check.
How reliable is a mortgage in principle?
As we suggested earlier, your life will be made easier when you do have the mortgage in principle. The estate agent might ask to see it, and you will have a clearer idea of what properties you can and cannot afford. It is not a guarantee that you will be offered a mortgage, as it remains conditional on you being able to meet the lender’s criteria. However, as it is an indication of what you might be able to borrow, you shouldn’t be in for any surprises when you later apply for a mortgage.
The different ways of saying agreement in principle
- AIP – Agreement in principle
- MIP – Mortgage in principle
- DIP – Decision in principle
How long does it take to get a mortgage in principle?
Get a mortgage agreement in principle in 24 hours for free!
Speak to YesCanDo: a fee free broker for free mortgage advice and support via WhatsApp, phone and email.
How do I get a mortgage in principle?
If you need a agreement in principle, get in touch with our team of friendly mortgage advisors at YesCanDo Money. We are more than happy to help you get one, and we can give you lots of free advice. With the FEE FREE mortgage advice and support, we can offer you, you will be on the way to picking up a new set of keys and owning your very own property in no time. We also offer free life insurance advice and quotes.
We offer free mortgage advice and support from the beginning all the way to your mortgage offer. We support you throughout the application process and continue to offer free support when the time comes to remortgage and get a better new offer.
Other Guides & Related Questions
What Is A Homebuyers Survey?
A home buyers survey is completed to produce a homebuyer report by a professional surveyor. They will examine and identify any problems that may exist in the property that you are looking to purchase. The finished report will outline any problems that have been found, such as damp and subsidence.
Read more here: https://yescandomoney.com/homebuyer-surveys-and-costs/
How Much Will It Cost Me To Move Home In 2021?
So, how much will it cost to move home in 2021? The answer depends on variables such as where you live, your deposit, and whether you’re a first-time buyer. First-time buyers face average moving costs of more than £1,500, while for existing homeowners, it’s £10,400!
How do I get the best interest rate?
Did you know that there is over 90 different bank and building societies in the UK offering over 14,000 different interest rates for mortgages? This means finding the current best mortgage rates can give you a headache.
The straight answer is the lender with the top mortgages and their rates change on a daily basis. The easiest way to find the lowest rates is to get a fee free mortgage adviser. They will be able to search the whole market and this way you will know the very best rates for you. They will not only look at the best rate but we take into account the over deal that comes with the rate.
Regulated by the Financial Conduct Authority (FCA)
YesCanDo money is a trading name of Roberts Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority, authorisation number 527815. Your home may be repossessed if you do not keep up repayments on your mortgage.