What Is a Mortgage in Principle?
You may have wondered if you’re a first time buyer how people can make an offer on a property before they’ve got a mortgage. This is where a ‘mortgage in principle’ comes in, which essentially acts as a guideline of how much mortgage you could borrow.
A mortgage in principle is also known as a “decision in principle” or “agreement in principle (AIP).”
It’s a crucial first step before you apply for the full mortgage, as it also gives you a clearer idea of what properties you could potentially afford.
The lender will look at your financial circumstances, including your credit rating, credit history, and overall finances. Based on this, they’ll give you an indication of the maximum amount they’re willing to lend you, as well as estimated mortgage rates and monthly payments you can expect.
Why is a Mortgage in Principle Important?
Getting a mortgage in principle is important for a few key reasons:
- Shows You’re a Serious Buyer: Having a mortgage in principle shows estate agents and sellers that you have a financial resource from a lender to fund a potential purchase. This can give you an advantage in a competitive housing market.
- Clarifies Your Borrowing Capacity: A mortgage in principle gives you a clear understanding of how much you can borrow. This helps you focus your home search on properties you can actually afford.
- Speeds Up the Full Application: When you’re ready to submit your full mortgage application, the lender will already have information about your finances. This can help get things moving faster.
- Identifies Potential Issues: The mortgage in principle process can uncover any problems with your credit or finances. This allows you to address them before applying for the full mortgage.
How Long is a Mortgage in Principle Valid?
A mortgage in principle is typically valid for around 60 to 90 days. After that, if your situation hasn’t changed, you may need to get a new one.
The Mortgage in Principle Process
Here’s a quick overview of how you go about getting a mortgage in principle:
- Contact a Lender: You’ll start by reaching out to a mortgage lender, either directly or through a mortgage broker, to express your interest in a mortgage.
- Soft Credit Check: The lender will do a soft credit check, which won’t leave a mark on your credit report. This allows them to assess your creditworthiness without impacting your credit score.
- Provide Financial Info: You’ll need to share details about your income, employment, and any existing financial commitments, like loans or credit cards.
- Get the Mortgage in Principle: Based on the information you provide and the soft credit check, the lender will give you a mortgage in principle, indicating the maximum amount they’re willing to lend you.
It’s important to remember that a mortgage in principle is not a guarantee of a mortgage offer. It’s an agreement that’s subject to further checks and the full application process.
What is a Decision in Principle?
A decision in principle, also known as a “mortgage in principle” or “agreement in principle (AIP),” is essentially the same thing – a preliminary agreement between you and a lender about how much they’re willing to let you borrow.
The Full Mortgage Application Process
Once you have a mortgage in principle, you can proceed with the full mortgage application. This typically involves steps like a hard credit check, providing additional documentation, a property valuation, and finalising the mortgage offer and mortgage agreement.
Throughout this process, it’s important to be upfront with the lender about your financial circumstances. Any money problems or credit issues should be disclosed, as they may impact the lender’s decision and the mortgage offer.
Remortgaging and a Mortgage in Principle
If you’re considering remortgaging, obtaining a mortgage in principle can also be valuable. It can help you understand your current borrowing capacity and identify any potential issues before the full remortgaging process.
Equifax and Credit Checks
During the mortgage in principle process, the lender will perform a soft credit check with credit reference agencies like Equifax. This allows them to assess your creditworthiness without impacting your credit score. However, the full mortgage application will involve a hard credit check, leaving a footprint on your credit report.
Securing Your First Home
Obtaining a mortgage in principle is a crucial first step, particularly for first-time buyers. By understanding this process, you can better navigate the mortgage application and increase your chances of securing your dream home.
The mortgage in principle is a valuable tool that can help you become a serious buyer, identify potential issues, and streamline the full application. By working closely with your lender, mortgage broker, and other experts, you can confidently take the next steps towards homeownership.
Let Newhomes Mortgage Services Guide You
At Newhomes Mortgage Services, our experienced advisors are here to help you through every step of the mortgage application process, from getting a mortgage in principle to securing your final mortgage offer. Contact us today to get started on your homebuying journey.
We understand that the mortgage process can be complex, with many moving parts. That’s why we’re committed to providing you with the guidance and support you need, every step of the way. From understanding your borrowing capacity to navigating the full credit check and mortgage agreement, our team of experts will be there to help you every step of the way.
We also understand the importance of protecting your personal information and credit history. That’s why we adhere to strict cookie notice and privacy policy guidelines, ensuring that your data is kept safe and secure throughout the process.
Whether you’re a first-time buyer or an experienced homeowner looking to remortgage, we’re here to help. Our mortgage calculator and other digital tools can give you a clear idea of what you can afford, while our video appointment functionality makes it easy to connect with our advisors from the comfort of your own home.
So why wait? Contact us today to get started on your homebuying journey. With Newhomes Mortgage Services by your side, you can be confident that you’re making a good idea for your financial future.
