An agreement in principle (AIP) is a great thing to have if you are a first time buyer or moving home, as it will help you identify how much you can borrow and will also show estate agents you are a serious buyer.
What is an agreement in principle?
An agreement in principle (AIP) is an official document that is produced by a mortgage lender indicating how much they would potentially be prepared to lend to you. It is based on your income and outgoings, along with a credit check. The AIP is one of the initial steps in the mortgage application process.
Do you need an agreement in principle?
There are a few different reasons why you might want to get an AIP done:
- If you want to make an offer on a property, then it is highly recommended you have your agreement in place. Most estate agents will request a copy of your AIP prior to putting your offer forward to a seller.
- An AIP will help give you an accurate estimate of how much you are able to borrow. This is important as it will give you a clear indication of what property prices you should be looking at.
- It will make sure you are not applying for a mortgage that is out of your budget and therefore will avoid any mortgage application declines which can have a negative effect on your credit.
When should you get an agreement in principle?
Once you’ve decided that you are going to start looking at properties then you should apply for your AIP.
This will put you in a strong position if want to make an offer and helps you establish how much you can borrow meaning you know exactly what budget you are looking at when arranging to view properties.
Most lenders will issue you with a certificate that shows how much you have been accepted for and estate agents will likely want to see a copy of this when you make an offer on a property.
What is the difference between an agreement in principle and a decision in principle?
An agreement in principle (AIP) and a decision in principle (DIP) are the exact same thing. They are called different things depending on what lender you are dealing with. They may also be referred to in the industry as a mortgage in principle.
Does an agreement in principle affect your credit score?
This will depend on the specific lender you apply to for your AIP. Most lenders will only use a ‘soft footprint’ at this stage which does not have any impact on your credit score. There are some lenders that will carry out a ‘hard footprint’ which can sometimes affect your credit and will be visible to anyone looking at your report.
Always check what type of credit check will be carried out as ideally you do not want anything to have a negative impact on your credit score going forward.
It is important to check your credit on a regular basis to make sure that everything is up to date and accurate on your report. This gives you an opportunity to identify anything that may be an issue and get it resolved.
Is an agreement in principle legally binding?
No, an AIP is not legally binding. You are not entered into a legal contract with the lender and nor them with you. It is simply a tool used to establish how much a particular lender may be willing to lend.
How to get an agreement in principle?
There are 2 ways you can apply for a AIP.
- Through a mortgage broker
- Direct with a bank
A mortgage broker will likely have access to many different mortgage products which means they can find you the right deal and the most suitable lender for you. By going direct to a lender, you are only going to have access to their products and criteria so this can be restricting.
How reliable is an agreement in principle?
Whilst an AIP isn’t a guarantee of a mortgage being accepted it does give a very good indication. To have the highest chance of success you will need to make sure the information put on the original agreement in principle is as accurate as possible.
How long does an agreement in principle last?
The length of time an AIP will last will be different depending on the lender. They will normally be valid for between 60 to 90 days. This gives you time to find properties you are interest in and get out on some viewings.
If you haven’t found a property in this time, then you can usually apply to renew the agreement. Just keep in mind that if there has been a change in your circumstances or in the economy then the results may change.
If your circumstances do change whilst you have an agreement in place it is best to contact your mortgage advisor to make them aware so they can make any necessary adjustments. The type of things that may have an impact are changes in job, income, debt or deposit amount.
If you have any further questions or you would like us to help you on your mortgage journey then contact us today!
Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.