When you get a mortgage in principle, you have your first indication that you are in with a chance of getting a mortgage. Getting a mortgage in principle is a good idea as it can give you an idea of the amount you will be offered if your application is successful. This way, your property search can be performed with a more accurate budget in mind.
Read on to learn more or simply contact Think Plutus to get the ball rolling on your mortgage today.
What does a mortgage in principle entail?
Simply put, a mortgage agreement in principle is an agreement to lend funds based entirely on an initial assessment. This assessment considers your income and outgoings, your credit score and the nature of your employment. It is not a formal offer of a mortgage – as the name entails, it is a mortgage ‘in principle’ and more information will have to be considered before a formal offer is made.
In the industry, ‘agreement in principle’ is often shortened to AIP. Sometimes it is known as a decision in principle or DIP. There is no difference between an AIP and a DIP except for the name.
Estate agents will often ask if you have an AIP when you move to put an offer down on a property. A mortgage adviser can help you get an agreement in principle once you have given them the necessary information – they will let you know exactly what you need.
If your objective is to buy a property using a mortgage, a decision in principle can be a great advantage. Here are some of the benefits:
- You get a picture of the amount you will be able to borrow
- You can feel confident about the offers you make on properties
- Your purchase offers get more credibility in the eyes of estate agents and sellers
- An AIP can be provided quickly to secure a time-sensitive deal
- You will be in a stronger position than buyers who haven’t got an AIP
Typically, a mortgage agreement in principle remains valid for either 60 or 90 days. There are different rates and fees to have an AIP document produced, depending on the lenders and brokers involved.
How do I get a mortgage in principle?
If you need an AIP as soon as possible, contact Think Plutus and we will make it happen for you. We can explain the process in detail once we understand your circumstances. Perhaps you need an AIP urgently to secure a property, or perhaps you have previously had a mortgage declined. It could be that you simply wish to know how much would be available for you.
You can approach a lender directly but you will only be able to choose from that lender’s products. Think Plutus, on the other hand, is a whole-of-market broker, meaning we can find you the best deals across the full UK mortgage market. We can provide access to every lender and their full range of mortgage products, giving you the best chance of finding your perfect deal.
Will a credit check be necessary?
It is necessary to undergo a credit check to get a mortgage AIP. These credit checks leave a ‘footprint’ on your credit file and not all credit search footprints are the same. A credit search footprint can be either hard or soft.
A soft footprint does show up on a credit report but it doesn’t indicate that you’ve actually submitted an application for credit; only that you have enquired. A hard application, meanwhile, indicates an application for credit and can have a detrimental effect on your credit score. The more footprints you have on your credit file, the lower your credit score will be, and this hampers your chances of being approved for a mortgage.
Even if your credit score is excellent, you are not guaranteed to secure an agreement in principle. All lenders have a set of criteria and checking your credit history will only tick one box. The other common criteria they assess include your employment details, your income, the deposit you have, the type of mortgage you’re applying for and a number of other considerations.
We strongly recommend that you go with a specialist mortgage broker right from the outset. This will lower your risk of having to apply multiple times with different lenders and thus damaging your credit score. Choosing the right lender is essential to protect your credit file and ensure you are getting the best possible deal. Experienced lenders have a depth of understanding about the criteria of different lenders, enabling them to identify the most suitable options that will maximise your chances of a successful application first time.
What documents will I need to provide for an AIP?
There will be various personal documents that a mortgage lender will ask for before they give you a decision in principle. There is a legal requirement for lenders and advisers to verify your identity and the details of your personal circumstances. This means you will be asked for some or all of the information and documents listed below:
- Photo ID (driving licence or passport)
- Proof of address (bank statement, utility bill)
- Proof of income (3+ months’ payslips or accounts)
- Proof of outgoings (3+ months’ bank statements)
- Credit card statements (or any other outstanding debt)
- Proof of deposit (either a bank statement or a signed confirmation for a gifted deposit)
- Credit reports (if there are any credit issues within the last 6 years)
If you have already set your sights on a property, your adviser will need to gather certain key details of that property, such as:
- The type of property
- The purchase price
- Any non-standard build materials
Your adviser will also need to know they type of mortgage you intend to apply for – for instance, whether it is a buy-to-let or a residential mortgage.
What’s the difference between a mortgage offer and a mortgage in principle?
An agreement in principle is not a guarantee that you will be offered a mortgage. It is merely the first in a number of steps, outlining the amount you might be able to borrow and the likelihood of approval.
A formal offer of a mortgage is only made once the full mortgage application has been processed, including a formal mortgage survey. However, you shouldn’t think that a mortgage in principle is a pointless exercise – most estate agents will ask for proof of an AIP. Most people consider an agreement in principle to be the first step in securing a mortgage.
Can I still be declined after getting an AIP?
It’s important to understand that having an agreement in principle does not protect you against being declined for a mortgage. The following circumstances can cause you to be declined after getting an AIP:
- Failure to provide the necessary documentation
- The initial details you provided were not accurate
- Your outstanding debt is too much
- The lender’s criteria for the property are not met
- Credit issues arise between receiving the AIP and applying for the mortgage
- If your mortgage application is being managed by Think Plutus, we can ensure all your documents are in order before you apply. We can also make sure your application is structured in the best possible way for the lender, increasing your chances of being accepted.
My agreement in principle was rejected
If you have been declined a mortgage, your lender or adviser should be able to explain the reasons. There are many possible reasons why lenders might decline a mortgage application.
Think Plutus advisers are mortgage specialists with lots of experience in dealing with ‘hard to place’ mortgages. If you’ve been declined, we can help you find out if there are any lenders who are better suited to your circumstances.
If you are told that your AIP has been referred, this means that it has gone to an underwriter to assess the application more closely. A referred decision is different from being declined. If it happens, your mortgage broker will attempt to iron out any issues the underwriter raises.
I need an AIP quickly
Having an AIP for estate agents to see adds real credibility to your offer. In some cases, it can make the difference in whether your offer is accepted or rejected. If you’ve found a property that you love and time is of the essence, Think Plutus can help expedite things.
We can carry out these initial stages remotely to streamline the process when you need it done fast. This saves you time and means that we can help no matter where you are located. Get in touch today and we will do our utmost to serve you no matter your requirements. To maximise your chances of getting an AIP, Think Plutus.