What is a mortgage agreement in principle (AIP)?
If you want to make an offer on a property through an estate agent, you will probably be asked for a mortgage agreement in principle. But what is a mortgage in principle and why do you need one?
An agreement in principle (AIP), also known as a decision in principle (DIP), a mortgage promise or a mortgage in principle (MIP), is a certificate or statement from a lender to say that, in principle they would lend you a certain loan amount.
When you apply for an agreement in principle, a lender will check your credit file to establish whether you’re eligible to borrow from them and if they are happy to lend the amount you need. The majority of lenders will run a soft search credit check on you to ensure the information provided is correct and you have passed the internal credit score for the individual lender. There are a few lenders who will carry out a hard footprint credit search at agreement in principle stage.
If the lender is happy with the information provided and what they find on your credit file, they will issue a certificate of pre-approval in the form of an agreement in principle certificate. The request for lending you make must also fit their lending crtieria and pass their affordability calculation, factoring living costs and any commitments you might have.
Estate agents will often ask if you have an agreement in principle before you can make an offer, so its worth getting one as soon as you’re ready to start house hunting. Having a decision in principle shows that you can, in theory, afford to buy a property. This could make you a more attractive buyer and stand you apart from other perspective buyers.
How do you get an agreement in principle?
To get an agreement in principle, you’ll either need to approach a mortgage broker or a mortgage lender directly to start the process. The information needed will include basic personal deatails, your last 3 years address history, details of your employment/self-employment, income details and any financial commitments you have. This process is called a fact find and you will need to provide documents to support the information given.
Once you receive agreement in principle certificate, it will typically be valid for 90 days. You can get another one if it expires, but it’s important that your personal circumstances haven’t changed for the worse.
Although an agreement in principle is very useful and is needed to make an offer, it’s important to remember its not the same as getting a mortgage offer. Only once you’ve submitted a full mortgage application for a mortgage and received an official mortgage offer, you can be certain that the lender is happy to lend and proceed. This will involve the lender valuing the property and scrutinising your documents and personal circumstances in more detail.
To increase your chances of securing a mortgage in principle, you should use an independent mortgage broker who can find the best lender to suit you, based on your individual circumstances. Whether that be the cheapest lender, the lender who will lend you the most or a lender who will lend to you based on your personal circumstances.
If this has got you thinking, we’d be delighted to help. Get in touch and we’ll be help you understand what’s possible, or sign up to our monthly newsletter, to keep your finger on the pulse.
Undray Griffith – 30th March 2023