A mortgage in principle, or mortgage agreement in principle, is a declaration of how much a lender is prepared to let you borrow to buy a home.
Knowing exactly how much you can afford is an essential step. It also proves to sellers that you’re committed, as you can demonstrate what a lender is willing to lend you.
What is a mortgage agreement in principle (AIP)?
A mortgage in principle is the initial agreement from the lender, qualifying that they’re willing to lend you the money to buy a house – and how much.
Getting one allows you to see what size mortgage you’re entitled to borrow.
It sometimes falls under specific names from certain banks, such as ‘Mortgage Promise’.
Agreement in principle vs. online calculator
It’s important to note that a decision in principle is not the same as using a mortgage affordability calculator.
While it’s important to get an idea of how much you’ll be able to borrow, an online calculator will show you an estimation based on mortgage prices. It’s only a ballpark figure.
Meanwhile, an agreement is a qualified confirmation from a mortgage lender on what they’re willing to lend you. It demonstrates what mortgage you can afford – but doesn’t necessarily mean the lender will release the funds.
What is a mortgage in principle based on?
The loan amount you’re entitled to will be based on a range of factors, these typically include:
- Employment status
- Credit rating
- Credit history
When should you get one?
It’s recommended you get an agreement in principle before you start house hunting. That way, you can attend viewings knowing how much you can afford, rather than wasting time looking at those out of your price range.
In the words of our founder Phil Spencer, ‘you don’t go shopping unless you know what you’ve got to spend’!
Getting an agreement in principle can also help you stand out from other buyers, which can be particularly useful for a property with lots of interest around it. This is because it will prove to the seller you can afford the property you’re looking at.
Why should you get one?
An agreement in principle is by no means compulsory, however, there are further benefits to getting one, including:
- Reduces the chance of you applying for a too-big loan and getting your mortgage application declined
- Some estate agents will only take you seriously if you have one. Some lenders will give you a certificate you can show
- Can improve your chances of getting a mortgage
- Gives you a clear idea of what you can afford
- Sets you apart from your competition – and less prepared homebuyers
- Can give you greater negotiating power when discussing price
- Can save time; potentially speeding up the mortgage application process once you have had your offer accepted
- Gives you confidence knowing what you can really afford
- Enables you to focus and take house hunting seriously
- Shows you are a committed homebuyer by showing you are taking all the important steps at the right time.
How long does a mortgage in principle last?
An agreement usually lasts between 60 and 90 days. So, if you haven’t found a property (or had an offer accepted) in that time, you might need to get another.
If anything changes relating to the details you provided when you made your original application (e.g. employment status), you’ll need to check that the agreement is still valid.
Why not just apply for a mortgage?
Securing a mortgage in principle is a much quicker process than applying for a mortgage. This will allow you to confidently view properties.
Also, the mortgage deal you’re offered will depend on the property itself. For example, lenders will need to carry out a valuation survey; a basic inspection on the property that determines its value. For this to be done, you’ll need to have found a home you’d like to buy.
Keep in mind that this isn’t the same as a property survey, which will look for any structural issues, such as damp.
Certain problems can be expensive to fix later on down the line, so it’s recommended you get one. It could help you decide when to stay, walk away, or negotiate the house price lower! Get a survey quote below, we can connect you with a trusted local surveyor.
Things to bear in mind about getting a mortgage in principle
The advantages of getting an agreement in principle tend to outweigh the disadvantages. However, there are a few inevitable drawbacks to be aware of.
Requires a credit search
Getting a mortgage agreement will require a credit check, in the form of either a hard or soft search.
The latter simply checks your credit file without leaving a ‘footprint’ and won’t be visible to other lenders, so shouldn’t affect your credit rating.
A hard search will show on your file. This alone isn’t necessarily detrimental, however, if a lot of hard searches are made in a short space of time, a future lender may think you’ve been rejected. This could make them less likely to lend to you. Different lenders do different searches, be sure to find out.
It’s not legally binding
It’s important to be aware that with an agreement in principle, there are no guarantees. Getting one doesn’t confirm that your mortgage application will be approved. For example, the lender could change their mind based on the valuation survey.
When you go on to make a full mortgage application, the lender will look more deeply at your circumstances and decide if you’re eligible. They could change their mind if they uncover something that makes you a riskier loan applicant.
How do I get a mortgage in principle?
First step is to speak to an adviser about what you can afford and your circumstances.
Want to find a mortgage deal that suits your needs? We can connect you with a member of our trusted panel. They’ll be able to find the best mortgage adviser for you, based on your circumstances and requirements.
Get a no-obligation mortgage quote below – it’s free to get in touch!
Last Updated: April 14th, 2021