When buying a house an estate agent may ask for an agreement in principle before taking it off the market.
The AIP is also called a decision in principle, a mortgage promise or a mortgage in principle. Basically, it’s a certificate or statement from a lender to say ‘in principle’ they’d lend you a certain amount.
This gives the agent the confidence to stop marketing the property. It also allows the usual purchasing and lending process to continue.
Is an agreement in principle an offer?
To be clear, an AIP isn’t a mortgage offer… it’s an initial agreement before thorough checks are carried out.
When applying for an AIP, the lender will check your credit file to determine whether or not you meet their lending criteria and how much money they’re willing to lend to you.
To gather this information, they typically request your full name, your address, three years of address history and details of your income and expenditure. At this stage, you can just provide the information alone without supporting documents. But you will need those when you make your full mortgage application.
Why get an agreement in principle?
To proceed with a house purchase, you won’t have much choice in whether or not you get an AIP. Most agents won’t take seriously until you provide one. It also gives you more credibility when searching for a property.
You’ll stand out from the other buyers if you can immediately produce an AIP and give initial proof that you are a serious bidder.
Make sure you’ve taken advice on products and lenders before you proceed with an agreement in principle, as getting one can leave a footprint on your credit score.
The size of your agreement in principle can be a helpful indicator of how much you’ll be able to borrow. You can use this to search for a property in your price range.
If you’ve had credit problems in the past, or if you have a limited credit history and aren’t sure what a bank or building society might lend to you, an agreement in principle could give you extra reassurance when you’re on the hunt for a new property.
Are there downsides?
The main thing to keep in mind when getting an AIP is that it is not a guarantee. When you go through the full application process, the lender will look at your earnings and credit history in more detail.
They may decide not to lend to you at this point. While it’s a good indicator, an AIP may not lead to an offer.
If you have any questions about an agreement in principle or other mortgage queries, contact us today.
Your home may be repossessed if you do not keep up repayments on your mortgage