Mortgages; What Are The Options Available?8th December 2022
Mortgages; What Are The Options Available?8th December 2022
WHAT IS A MORTGAGE IN PRINCIPLE?
What is a mortgage decision in principle?
A Mortgage Decision in Principle (DIP) will give you an indication of how much you can borrow. Lenders, Mortgage Advisers and Estate agents also refer to a mortgage decision in principle as:
- Agreement in Principle (AIP)
- Mortgage in Principle (MIP)
- Mortgage Promise (MP)
- Approval in Principle (AIP)
To obtain a decision in principle, your mortgage broker will need to gather information about your finances such as the income you receive and your financial commitments. They can then work out how much lenders will be willing to lend to you.
Your mortgage adviser will need to analyse your credit report to check both current and historical credit behaviours. We would recommend you get a copy of your latest credit report from CHECKMYFILE. The full report along with your credit score from CHECKMYFILE will give us a clear idea how the 3 UK credit agencies view your credit conduct. This will ensure that lender’s credit searches will not contain any surprises further along the process.
Your mortgage broker can then issue an Agreement in principle certificate from the lender that is most suited to your requirements within 24 hours. The mortgage decision in principle will typically be valid for up to 90 days.
Most estate agents will require evidence of your Mortgage in Principle to verify
What information is needed for a mortgage agreement in principle (MIP)?
To obtain the mortgage in principle (MIP), You will be required to supply various details alongside anyone else buying the property with you. This will include:
Your Personal details. Such as Name and Date of Birth.
Your Address history for the last three years.
The income you receive. (Wages/Bonus/Self Employment/Benefits/Credits/Pension)
Your monthly outgoings. (Including ongoing Credit commitments that you have)
you will need to provide Identification, bank statements and Utility bills.
Your recommended mortgage provider will then complete a credit check before issuing an agreement in principle.
The credit report will show your credit conduct over the past 6 years. It shows both your current and past credit commitments, such as credit cards, Loans, Mail Order, Utility payments etc. Most estate agents will require evidence of your Mortgage in Principle to verify that you are a serious buyer and can afford the property.
Will a Decision in Principle affect my credit rating?
When your mortgage broker applies to the mortgage lender for an Agreement In Principle (AIP), the lender will run a credit check to make sure your credit profile fits within their guidelines. This will involve the lender checking your credit file including past and present debts, i.e. credit cards and loans. The credit search will leave either a Hard or Soft footprint.
A search footprint is a mark left by a credit reference agency every time your credit file is searched. If the lender runs a 'soft credit check', it won't leave a footprint, or have any impact on your credit score. This soft style search is only seen by the Lender that conducted the search and you. However, hard credit check searches are seen by anyone accessing your credit file, it will affect your report for 12 months and can have a negative impact on your credit score. It will show mortgage applications made to other lenders; multiple applications can be a red flag for lenders.
To get a better understanding of your credit rating, We suggest you get a credit report which will look at the information stored from credit reference agencies such as TransUnion, Experian and Equifax.
Once I get an Agreement in Principle is my mortgage application guaranteed?
Unfortunately your decision in principle is not a guarantee that you will be successful getting a mortgage offer - you will still need to go through the full mortgage application process once you find a property that you wish to purchase.
Your Agreement in Principle, AIP is normally valid for up to 90 days, your mortgage adviser will be able to use the information you supplied for the AIP to process the full mortgage application. The mortgage lender will need to verify the information, and check that your personal circumstances and credit profile has not changed, that you still fit within the mortgage lenders eligibility.
The Mortgage Lender will also need to make sure the property is acceptable to be used as security in the mortgage application.
What are the advantages of having a decision in principle?
Getting a mortgage decision in principle is beneficial, it proves that you are a serious buyer to vendors, it confirms that you have spent time with a mortgage adviser to assess your chances of getting a mortgage and that you can afford to buy their property.
The mortgage in principle will show how much you could borrow; this will help narrow down your search to properties within your budget.
A decision in principle can put your mind at ease that you are potentially, a good candidate for a mortgage, especially if you have a history of credit issues or if you have been declined for credit or a mortgage in the past.
Once you have found a property and are ready to submit an offer, the estate agent will often want to see your decision in principle certificate. They can then inform the vendor that you have been assessed and have the finances in place to purchase the property.
What’s the difference between a mortgage offer and an agreement in principle?
An official mortgage offer is made after your full mortgage application has been fully assessed. It is confirmation that the lender has verified all your personal information and that the property is suitable. They are happy with your full mortgage application and are prepared to lend if you were to proceed with buying that property.
Whereas, the agreement in principle is done before the full mortgage application. This decision in principle certificate confirms that the lender is prepared to lend if they can verify all the information supplied and your proposed property is suitable. A mortgage in principle proves that you can afford to borrow enough to finance the property, but it’s not a guarantee.
A mortgage in principle is useful before you start on your hunt for a new home, once you have located a specific property you will need to apply for a mortgage, once you have had your full mortgage application approved you will be issued a mortgage offer.
Can first time buyers get a mortgage decision in principle?
Yes first time buyers can get a decision in principle, in fact we would recommend all first-time buyer’s get a mortgage agreement in principle. As you do not have a property to sell, most First time Buyers (FTB) rely entirely on financing the new purchase with a mortgage apart from their deposit. A mortgage in principle will reassure you and your estate agent that you can afford the property.
When you’re applying for a mortgage agreement in principle, your experienced mortgage broker will need to run a credit check with the mortgage lender for you. This will include looking through your credit history in more detail, to confirm that you are suitable to borrow the amount you’re asking for and get the best mortgage deal.