Mortgage in principle (Everything you need to know)
Getting an agreement or mortgage in Principle in the UK
A mortgage in principlecan be obtained directly from the mortgage lender or obtained through a mortgage broker
What is a Mortgage In Principle?
A Mortgage in principle, also known as an agreement in principle is essentially a guide on if a lender will loan to you and how much they will loan on your desired property.
Getting a mortgage in principle should not affect your credit score as most mortgage lenders will issue their mortgage in principle using a soft credit search which doesn’t leave footprints visible to anyone but you on your credit report.
Getting a mortgage in principle is not a requirement before getting a mortgage offer or going shopping for a property but it gives you much authority in the property market when meeting property sellers and estate agents.
It usually involves a credit check and basic mortgage affordability checks.
Once you have had an offer accepted on a property you can then go ahead to make a full mortgage application to the mortgage lender.
The mortgage lender may then give you a mortgage offer or decline to give you a mortgage offer.
How long will a mortgage in principle last?
A mortgage in principle will last between 60 to 90 days on average. You should not apply for multiple mortgages in principles as whenever they are generated a lender may do a hard credit search on your credit file and too many of these will appear negative.
What will you need for a Mortgage in principle?
You will need proof of your income: this means your bank statements for 3 months, payslips for 3 months and tax returns
You will need proof of identity: this means your driver’s license, passport or utility bill.
Pros of a mortgage in principle
A mortgage in principle will make you look serious amongst other buyers
A mortgage in principle will let you know if a lender will consider you for a mortgage and give you the confidence to go shop for properties
Cons of a mortgage in principle
A mortgage in principle does not reflect on what sort of rates or monthly payments you will eventually qualify for as the mortgage lender will not give you a key facts illustration at this point and there is no guarantee the lender will give you a mortgage even after you have gotten your mortgage agreement in principle.
You can get a mortgage in principle and still get declined for a mortgage.
You might get a mortgage in principle from a mortgage lender as they have a good deal on offer at the moment but by the time you come round to getting a mortgage offer this deal could be off the table as their mortgage rates may have changed.
What do you need for a mortgage in principle?
When you meet a mortgage broker for mortgage advice, they will likely advise you on which mortgage lenders will lend to you but you need a mortgage principle to have a greater certainty of this and then continue your home buying process.
Without a mortgage in principle, you may plan to buy a home, save for it and even pay a deposit on a house only to realise you can’t get a mortgage with any mortgage lender.
Do you need a mortgage in principle to make an offer?
No, you don’t need a mortgage in principle to make an offer on a house but most home sellers and estate agents may not take you seriously if you make an offer on a home without a mortgage in principle and they may request a bigger reservation or holding fee which could be non-refundable.
This means if you end up not being able to get a mortgage offer from any mortgage lender then you will likely lose your reservation or holding fee.
Can you get a mortgage in principle online?
Yes, you can get a mortgage in principle online.
Most mortgage lenders now allow you to apply for a mortgage in principle online.
The fact that you can get a mortgage in principle online shouldn’t encourage you to make a mortgage application online without the assistance of a mortgage broker except you are sure of yourself.
Taking mortgage advice from a mortgage broker may be much more suitable than applying for a mortgage in principle online with one mortgage lender.
How long does it take to get an agreement in principle?
A mortgage or agreement in principle could take as little as a few hours to get online.
Most mortgage lenders will simply do a soft credit check and analyse your income information to give you an indication on if they will be willing to lend to you.
The mortgage lender may not necessarily verify the information you put in your mortgage in principle application form.
This means if you have put in any incorrect information intentionally or by error you may receive a mortgage in principle by error.
Is a mortgage in principle guaranteed?
A mortgage in principle is not guaranteed. A mortgage lender can still decline your mortgage in principle application or even decline your mortgage application after have received a mortgage in principle.
Does a mortgage in principle mean I will get a mortgage?
A mortgage in principle does not mean you will get a mortgage. A mortgage lender can still refuse to offer you a mortgage even after given you a mortgage in principle.
This could be for a variety of reasons but mainly it will be due to the further checks the mortgage lender may carry out on your credit history and finances.
During further checks, a mortgage lender could have discovered bad credit behaviour or negative marks on your credit history.
Bad credit could be:
A debt management plan
A home reposession
Can a mortgage in principle be declined?
Yes, a mortgage in principle could be declined if the mortgage lender does not feel you meet their criteria for lending.
If you use a mortgage broker then a mortgage broker may know which lenders to approach with your case to ensure you are able to get a mortgage on the first try.
Being declined for a mortgage in principle isn’t the worst thing as it will allow you time to assess what went wrong is wrong with your mortgage affordability and make any necessary changes that you may need to increase your mortgage affordability and stand a better chance of getting a mortgage.
In some cases, the mortgage lender may refer your case and communicate the issues to you to see if you can resolve them before making a decision on if to decline or offer you a mortgage in principle.
Example: a mortgage lender could communicate that you don’t fit their current criteria as you don’t have enough mortgage deposit but if you can increase your mortgage deposit then they may be able to reconsider and offer you a mortgage in principle.
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.