What is an Agreement in Principle?

For most of us, arranging a mortgage is an important step towards buying a new home. One term you may come across is an ‘Agreement in Principle’ (AiP) (also called a ‘Decision in Principle’ or ‘Mortgage in Principle’). But what does it really mean? And how can it potentially help you buy the home you’ve set your heart on? When you’re house-hunting, the chances are you’re likely to be up against other potential buyers. An AiP shows sellers, developers or estate agents that you’re a serious buyer who can genuinely afford the properties you’re viewing and possibly making offers on.

HOW MUCH MONEY YOU COULD POTENTIALLY BORROW

Knowing how much you can realistically expect to borrow also helps you focus and gives you the confidence to go and look at properties. That’s particularly important if you’re a first-time buyer (it’s worth remembering there are schemes such as Help to Buy specifically created for people looking to get on the property ladder). An AiP is a way for you to secure the funds you need to buy a property before you have found one. It’s a written statement from the mortgage lender that sets out how much money you could potentially borrow for your home purchase.

HELPING YOU TO SPEED UP THE BUYING PROCESS

This means that you can start looking for your dream home knowing that the money is already in place. It’s important to remember that it isn’t a formal offer and isn’t guaranteed, and will only last for a certain period of time – usually around 90 days. But it is an indication from the lender that they are likely to be able to lend you the amount of money that you need to purchase the property. This gives you the peace of mind of knowing that you have the funds available to buy your new home, and it can also help speed up the buying process as sellers will know that you are serious about purchasing.

INFORMATION ABOUT YOURSELF AND YOUR FINANCES

To obtain an AiP, you will need to provide some information about yourself and your finances. This will include your income, outgoings and credit score. The lender will then use this information to calculate how much they are likely to be able to lend you. As has been mentioned, an AiP is not a binding agreement, and the final loan amount may be different depending on your individual circumstances. It is also important to remember that you will still need to pass a credit check before you can be approved for a mortgage.

OBTAINING PROFESSIONAL MORTGAGE ADVICE

If you are thinking of buying a property in the near future, it is worth considering obtaining an AiP. This can help you get started on the property search process and give you the peace of mind that you need. It also means you can use it to show your potential sellers that you have the ability to secure a mortgage and can realistically afford to buy their home. When you ask for an AiP from a lender, it’s worth knowing that each application may leave a mark on your credit file. So before you start, it makes sense to obtain professional mortgage advice. We can assist you through this process.

COMPLETE AND DETAILED CREDIT CHECK

Before a lender decides to fully approve your mortgage, they’ll run a complete and detailed credit check. They’ll also look at your payslips and bank statements. When it comes to this full credit check, it can be worth asking if it’s a ‘soft’ or ‘hard’ check. A ‘soft’ credit check is a background one that won’t negatively affect your credit score. However, numerous ‘hard’ checks over a short period can lower your credit score and stay on your report for four years. But if you are thinking of buying a property in the near future, it is worth considering getting an AiP.

Don’t forget, our professional, friendly advisers are on hand to support you and can help you explore all of your options.