That’s a great question, and if you are thinking of buying a property and require a mortgage, then this is going to be one of the first questions you’ll ask.
When viewing or offering on a property, estate agents will ask you for an “Agreement in Principle” or an “AIP” to give them some reassurance of your ability to purchase the property, not to mention your own peace of mind.
In short, an Agreement in Principle (AIP) is the first step to getting a mortgage!
It’s an initial certificate confirming that you have passed a basic credit check and provides you with an estimate of the mortgage loan amount you may be able to borrow.
Why Do I Need an Agreement in Principle?
Not only will an Agreement in Principle give you a pretty good idea of how much you can borrow, but it will also confirm your credit score is satisfactory and help you to understand your budget for your new property.
This will also satisfy estate agents of your ability to purchase a property they may be selling. It will help them to take you and any potential offer you wish to make seriously, and in the best light.
Most mortgage lenders will not allow you to apply for a mortgage with them until they have given you an accepted Agreement in Principle, so you could call this an essential stepping stone.
When Should I Get an Agreement in Principle?
This is a very exciting question! If you’ve decided that you want to buy a property, then this will be one of the first steps in your home buying process. Having a good understanding of what you can afford early on will provide you with a huge confidence boost and can be very reassuring that buying a property is the right thing to do. It’s also great to know that you have the required credit score to be eligible for a mortgage.
Having a clear understanding of your budget, your affordability, and your options early on will put you in the best possible position for when you see a property that you love! You won’t need to waste time trying to sort it after you’ve found your dream home, so you can concentrate on how to offer on a property, negotiations, and what to do to secure it.
Not to mention that having an AIP before you view any properties will make you much less likely to offer on a property that you could never really afford to buy! Yup, that does really happen!
What Will I Need to Provide to Get an Agreement in Principle?
When applying for an Agreement in Principle, you will typically need to provide the following documents and information:
- Details of your income: Whether it’s guaranteed or non-guaranteed, such as basic salary or overtime.
- Identification documents: Such as your passport.
- Details of your employment or self-employment: Such as start dates or nature of your contract.
- Each applicant’s address history: Covering the last three years.
- Details of your outgoings: Such as existing credit agreements or childcare costs.
How Long Is an Agreement in Principle Valid For?
With most mortgage lenders, an Agreement in Principle is valid for 90 days or 3 months. Once an AIP has been accepted, there will be an expiry date on the certificate.
Can I Extend My Agreement in Principle?
Yes, assuming that your circumstances remain the same, there are no changes to your income or employment history, etc., then it should be pretty straightforward to extend your Agreement in Principle, likely for another 90 days.
Is an Agreement in Principle the Same as a Full Mortgage Offer?
These are very different but often mistaken for one another.
An Agreement in Principle is only a theoretical decision; no documents will have been assessed by the lender at this stage. It’s unlikely that an underwriter has yet assessed the finer details, and a property valuation certainly will not have been completed. This is likely to be a soft credit search only.
Whereas a Mortgage Offer is a formal, binding document that’s issued by your lender, confirming their commitment to grant you a mortgage for a particular property, post-valuation. This offer is provided once you have completed a comprehensive mortgage application, providing additional details, and undergone a full, hard credit search.
How Is an Agreement in Principle (AIP) Different from a Decision in Principle (DIP) or a Mortgage in Principle (MIP)?
An Agreement in Principle (AIP), a Mortgage in Principle (MIP), or a Decision in Principle (DIP) are all the same thing. Different lenders may refer to them differently, as will estate agents or other industry professionals, but to avoid any confusion, they are most certainly all the same thing!
Will It Damage My Credit Score to Get Another Agreement in Principle?
When applying for an Agreement in Principle, most mortgage lenders will complete a soft credit search, and some will complete a hard credit search. Soft credit checks do not appear on your credit report, and as they are not visible to other lenders or creditors, they do not affect your credit rating. There is no limit to the number of soft credit checks that you can complete, and they will not impact your credit score.
If the lender only completed a soft search at the AIP stage, then they will complete a hard credit search at the Full Mortgage Application (FMA) stage. A hard credit search is a more in-depth search that will leave a footprint on your credit report and be visible to other mortgage lenders.
Some lenders will not complete a soft search at all and will complete a hard search at the AIP stage. We recommend limiting the number of hard credit checks that are completed as these can impact your credit score and your ability to secure a mortgage.
Can The Mortgage Pod Get Me an Agreement in Principle?
Absolutely we can. We will start by helping you understand your options, which lender may be the most suitable for your circumstances and why. We will then talk you through the process of what exactly is involved to secure a mortgage in principle for you. Then when you’re ready, the AIP can be converted into your full mortgage application, and we’ll even get this taken care of for you as well! You can start this process with our friendly team here.
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FAQs
The estate agent is offering to get me an Agreement in Principle. Do I have to use them?
No, you are not obligated to use the estate agent’s mortgage broker if you choose not to. The selling agent will rightfully request a copy of your AIP, which you can arrange through an independent mortgage broker, such as our team HERE.
Do I need a Mortgage in Principle to make an offer on a property?
Yes, we highly recommend securing a Mortgage in Principle before offering to buy a property. This can save time for you and other parties and help avoid potential disappointment if there are any unknown issues.
I’ve been declined for a mortgage Decision in Principle. Can I apply for another one?
Absolutely, you can. A benefit of working with a professional mortgage broker, such as The Mortgage Pod, is that if one lender says no, there is likely to be a different lender that will say yes.
How long is an Agreement in Principle valid for?
An AIP is typically valid for 3 months, although it can often be extended without too much trouble.
How can I get a mortgage agreement in principle?
Get Started with The Mortgage Pod’s friendly team HERE today.
