Taking your first step on the housing ladder is a very exciting time, however there are steps you need to take before the home of your dreams is yours, and this includes getting an agreement in principle, otherwise known as a mortgage in principle.
In this article, we’ll explain how to get an agreement in principle, what is involved in the process, and whether an agreement in principle can affect your credit score.
What is an agreement in principle?
An agreement in principle is a non-binding document from a lender that indicates how much money you can borrow for a mortgage.
An agreement in principle can also be known as a mortgage in principle, a decision in principle, an approval in principle or a mortgage promise. These are all written estimates from a building society or bank that show you a general indication of how much you can borrow for a property.
Once you have it, you can prove that you’re a serious buyer to estate agents and vendors, which should mean that you can get a mortgage!
How do you get an agreement in principle?
Getting an agreement in principle will help you to understand the value of the home that you will be able to afford, and it is one of the first steps of the house-buying process.
You can apply for an agreement in principle in several ways:
- Online
- By phone
- Visiting your bank or building society’s branch
What documents do I need for an agreement in principle?
When it comes to applying for an agreement in principle, you will be asked to provide several pieces of information by the lender or adviser:
- Your name, date of birth and address
- Address details (going back three years)
- Your income
- Your expenditure and existing credit agreements
Once you have supplied this information, your lender will be able to give a maximum amount that they would be willing to lend you ‘in principle’, and will supply you with written proof of this in the form of a letter or certificate.
How long does an agreement in principle last?
Usually, an agreement in principle is valid for between 30 – 90 days. However, it’s important to note that if it expires before you can make an offer on a house or flat, it is possible for it to be renewed.
Does an agreement in principle affect your credit rating?
Your lender will ask for your permission to run a credit check when you apply for a mortgage in principle. This will either be ‘hard’ (meaning it will leave a footprint on your credit record that other lenders will see and could affect your credit rating in the future) or ‘soft’ (where other lenders won’t see it on your credit file).
If you are getting multiple agreements in principle, we suggest asking if they use hard or soft checks. If too many hard searches take place in a short space of time, your credit score could be damaged, so it is important to keep this in mind!
What can go wrong with an application in principle?
As long as you supply the correct information when you apply for your mortgage in principle, the chance of something going wrong is very small.
However, if you don’t meet a potential lender’s requirements, then you could be rejected, or you may find that you are not able to borrow as much as you need, which could be disappointing and is often linked to a poor or limited credit rating.
Is an agreement in principle an offer?
No. An agreement in principle is not an offer. Having an agreement in principle doesn’t mean that getting a mortgage is guaranteed. At this stage, only your credit and affordability have been checked at a very basic level.
As yet, the lender’s criteria rules won’t have been checked at all, and it is worth keeping in mind that elements such as the type of income you have (as opposed to the level), the type and location of the property and what you are looking to borrow the money for are all factors that will weigh into the lender’s decision, and could ultimately result in a mortgage offer not being granted.To help avoid any uncertainty, using a mortgage broker can be extremely useful.
While an agreement in principle suggests you might be approved, a broker can assess your full situation and tell you if you definitely can. This gives you extra peace of mind—not just when making an offer, but all the way through to the mortgage completion date.