Agreement in Principle
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Agreement in Principle (Part 1)
Adam Nunn and Jon Porter explain how an Agreement in Principle works.
What is an Agreement in Principle?
Adam: An Agreement in Principle is essentially an indication of what a lender may be able to lend to you based on your personal circumstances. It considers your age, income, your commitments and, of course, your credit history and credit score.
It is important that you look to arrange one of these before you start looking and to buy a property.
What should I do if my estate agent is asking to see my Agreement in Principle? How do I get one?
Jon: We can obviously assist in that. Estate agents will ask for it to reassure their vendor that you’re in a position to proceed. If they receive an offer, they want to know that you’re in a good place to buy the property. Most estate agents will still allow you to view the property, but this confirms your budget.
We usually recommend that you only provide the Agreement in Principle when submitting an offer on a property. If your original Agreement in Principle is higher than you need for this home, we can adjust it according to the purchase price. Then you can show you can afford what you want to offer to the estate agent.
Do I have to have an Agreement in Principle through the estate agent I’m looking to purchase through?
Adam: Not necessarily, no. An estate agent needs to ensure you are in a position to proceed by verifying your mortgage capability. They can only do that via a mortgage adviser. Most estate agents would accept this confirmation from an independent brokerage like ourselves.
Of course, estate agents do have in-house services, so they may try to sell those services to you. But you’re not obliged to use their in-house broker.
How reliable is an Agreement in Principle and how long does an AIP last?
Jon: The reliability of an Agreement in Principle depends on the level of due diligence the adviser has carried out when applying. Some advisers just take verbal confirmation of your personal circumstances, which makes it less reliable.
Advisers like ourselves get the required documents ahead of requesting an Agreement in Principle. Therefore, we’re mitigating the risk of any issues arising once we get to full application. That puts you in the strongest position, through understanding the full situation.
An Agreement in Principle is not a mortgage offer. Timeframes with regards to the Agreement in Principle do vary from lender to lender. They can last 30 days, or potentially 90 days.
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Can I make an offer with an Agreement in Principle?
Adam: You can, and you should ideally arrange the Agreement in Principle before making offers on properties. Speak to someone like ourselves to get the advice, because it’s fine having written confirmation of what you can potentially borrow, but the advice process will help make sure you can comfortably afford the mortgage payments.
You need to understand how much it will cost, how that impacts your quality of living and also the moving costs. With a broker, you’ll also benefit from guidance on how to approach an estate agent, how to structure your offer, and of course, which insurances and other costs to budget for.
Does an Agreement in Principle (AIP) mean you’ll get a mortgage?
Jon: No. An Agreement in Principle is only an indication. Issues could occur when you fully apply for a mortgage. However, we try to the best of our ability to verify all your documents to understand your income and commitments, which gets us a high success rate at full application.
Sometimes issues do occur that are outside our control. They can be down to the property and the valuation, and can therefore affect whether you reach the mortgage offer stage.
Will I need a credit check? Does an AIP affect credit score?
Adam: An AIP is a credit check. Some lenders only complete a soft search, but some lenders do a hard search, which will impact your score.
When you use our service, we obtain a copy of your credit report prior to doing an AIP. That credit report includes all the information that Experian, Equifax and TransUnion have on you. There’s no impact on your credit score for that.
If you have a low credit score because of poor, or lack of, credit, we won’t recommend a lender that does a hard search at this stage. We don’t want to affect your ability to get a mortgage moving forward.
How do I apply for an AIP? How long does this typically take?
Jon: When you book an appointment with us, we would go through your ID, proof of deposit, proof of income, credit report and bank statements. Once we’ve got all that information, we can explain your borrowing capacity, the potential mortgages available and what the mortgage costs are.
We then get you the Decision in Principle with the most suitable lender. Depending on the overall circumstances for each individual client, it could take 30 minutes to an hour to go through everything properly. After gathering the documents, the whole process is complete within a 24 hour period, but it can be faster.
How can a mortgage broker help? Is there anything else we need to know here?
Adam: Just to reinforce the fact that getting an AIP is a vital part of the process. With us, it’s not just a tick box exercise. It’s more than showing an estate agent that you can borrow X amount of money. Of course, that’s what you’re looking to achieve, but it’s actually a chance to be educated on the full home-buying process and the costs involved.
Sometimes people come to us with tricky situations or concerns, such as adverse credit or complexities with their income. Of course, we can help advise and hopefully solve these problems ahead of arranging an Agreement in Principle for you.
We offer a tailored service. That includes the arrangement of insurances like life cover and income protection. We can also connect you with other parties like solicitors and surveyors. So it’s well worth having a chat with us.
Key Takeaways:
- An Agreement in Principle (AIP) indicates what a lender may lend based on age, income, commitments, and credit history.
- Arrange an AIP before looking to buy; estate agents require it to confirm you can proceed and to verify your budget.
- An AIP is not a mortgage offer; it is an indication only, and issues (e.g., property valuation) may still occur during the full mortgage application.
- An AIP involves a credit check, which can be a soft or hard search (hard searches impact your credit score). A good broker will help avoid hard searches if your credit is low.
- A mortgage broker provides a tailored service, including education on the home-buying process, offer-structuring advice, help with complex situations, and connections to related services.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.