How reliable is a mortgage in principle?
In this brief blog, we are going to discuss how reliable is a mortgage in principle, what a mortgage in principle is and how to get a mortgage in principle.
What is a mortgage in principle?
A mortgage in principle or agreement in principle is essentially a document which states how much a mortgage lender may be willing to lend you. A mortgage in principle is not a guarantee that you will get a mortgage. It instead gives you the confidence to shop for your property and allows home sellers and real estate agents to take you much seriously.
how reliable is a mortgage in principle?
A mortgage in principle is not a guarantee that the mortgage lender will provide you with a mortgage offer and hence should not be considered as incredibly reliable. A mortgage in principle can be withdrawn by the mortgage lender for a number of reasons.
To receive a mortgage in principle the mortgage lender will usually ask you for basic information which is just used to gauge your mortgage affordability. This makes a mortgage in principle a bit not so reliable as when the mortgage lender carries out a full mortgage fact find prior to providing you with a mortgage offer they will do a more in-depth check on your finances, your credit history and the property you want to buy. You may find that your mortgage in principle becomes an unreliable factor on your ability to get a mortgage or not.
To decide if the mortgage in principle you have obtained is reliable you should ask your mortgage broker how often they have had that mortgage lender withdraw a mortgage in principle or ask your mortgage broker if they thnk the mortgage in principle is reliable and if not, why it isn’t reliable?
If you barely meet the mortgage lenders mortgage affordability requirements the mortgage broker may inform you that the mortgage in principle you have just obtained isn’t reliable and you may want to consider alternative mortgage lenders in case your current mortgage lender withdraws their mortgage in principle.
There are many instances where a mortgage lender has provided a mortgage in principle then declined the borrower this doesn’t mean the mortgage in principle provided by the mortgage lender was unreliable because there may be a lot of reasons why a mortgage in principle could be approved then declined including:
- Failing further mortgage affordability checks
- Requiring a bigger mortgage than you initially got your mortgage in principle for
- A drop in your credit score since you initially got your mortgage in principle.
- If you were dishonest during your mortgage in principle application then the mortgage in principle may not be reliable
- If you are in the middle of a job change then your mortgage in principle may not be reliable
- If you are about to have a baby then your mortgage in principle may not be reliable
- If you are buying a non-standard construction property then your mortgage in principle may not be reliable.
- If the mortgage lender has a history of declining people for mortgages after offering a mortgage in principle then the mortgage in principle may not be reliable.
- If you are a self-employed borrower then the mortgage in principle may not be reliable
- If you have bad credit( bankruptcy CCJ, IVA, mortgage arrears or a mortgage default) then the mortgage in principle may not be reliable
- If you are a foreign resident then the mortgage in principle may not be reliable.
- If your financial position may change significantly before you complete on the mortgage then your mortgage in principle may not be reliable.
is a mortgage in principle a good sign?
A mortgage in principle is a good sign that you may be able to get a mortgage but it is important to remember that a mortgage in principle is based on the information you have given and not any extensive checks by the mortgage lender.
So whilst a mortgage in principle may be a good sign that you are likely to get a mortgage, it is by no way a guarantee that you can get a mortgage.
What can go wrong when getting a mortgage in principle?
There are very few things that can go wrong when getting a mortgage in principle, they include:
- Being rejected due to not meeting the lenders requirement
- Your mortgage in principle being delayed due to lack of supporting documents
- Being rejected due to not having any credit history
Does an agreement in principle guarantee a mortgage?
An agreement in principle does not guarantee a mortgage as the mortgage lender will usually carry out only basic checks when assessing a mortgage in principle application. When it is time to provide a mortgage offer the mortgage lender will then carry out more in-depth searches such as a hard credit search, requesting more financial information and a full mortgage fact find.
Most mortgage in principle decisions should last 90 days but you may be able to get an extension to how long your mortgage in principle will last by requesting this from the mortgage lender or through your mortgage broker.
Does a mortgage in principle affect your credit score?
A mortgage in principle or agreement in principle should not affect your credit score if it is a soft credit check. Most mortgage lenders will conduct a mortgage in principle application using a soft credit check but some lenders such as Nationwide will still conduct a mortgage in principle check with a hard credit check which may damage your credit score and limit your ability to get a mortgage with a new mortgage lender within a short period of time.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
In conclusion, a mortgage in principle can be reliable or unreliable based on how much information he mortgage lender asked you before offering you the mortgage in principle and based on your level of mortgage affordability. If you barely qualified for the mortgage in principle then it may likely be an unreliable mortgage in principle whilst on the other hand, if you comfortably got a mortgage in principle as you meet all the mortgage lenders demands then you may find that the mortgage in principle is reliable.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.