Updated: Nov 24
Are you just starting out and looking to purchase your first home? Are you perhaps looking to move or purchase another property?? Either way you may be unsure on how much you can borrow and whether a lender will be prepared to support you. In our latest article we explain what an Agreement in Principle – AIP, also often referred to as a Decision in Principle, Mortgage Promise or Mortgage in Principle – is, how the process works and the benefits it provides.
What is an Agreement in Principle?
An Agreement in Principle is a written estimate from a bank or building society that provides you with an indication of how much you can borrow. You can obtain this either from your mortgage broker or from your bank / building society if that is your preferred route.
What are the Benefits of an AIP?
An AIP is a great first step for buyers looking to purchase a property. Having one can bring peace of mind not only when you begin your search, but also when you are ready to make an offer. Estate Agents and sellers alike will appreciate that you have this agreement in principle since it demonstrates financial stability and that you are serious about purchasing a property.
Will I Receive Anything in Writing?
After receiving the green light with your mortgage AIP, you can expect to receive a certificate from the lender that provides evidence of your readiness to move forward. This document, often referred to as a Mortgage AIP Certificate, is helpful evidence when meeting with an estate agent or seller.
How do I Obtain an AIP?
You will need to share your details with your mortgage broker (or your bank / building society if this is your preferred route), which should include providing all your documents beforehand too. By providing your documents early into the process will ensure that you are in the best position possible for approval and that nothing has been overlooked. (we’ve often seen mortgage decisions change / retracted when documents have been provided further down the line)
How Long Does an AIP Last?
Most lenders offer their AIP’s for between 30 and 90 days. However, all is not lost if yours runs out, providing there have been no changes to your income or expenditure your AIP can generally be updated with relative ease.
Can an AIP be Withdrawn?
When applying for a loan, an AIP can give you an indication of the amount that might be available to borrow. However, it’s important to remember that changes in circumstances could affect your application – such as having fewer funds saved up or switching jobs. Make sure all your information is current and accurate if you want the best chance of success.
What Happens if My AIP is Declined?
Do not worry if you are rejected by a lender. They all vary and operate their own individual credit score process, so where one lender may not support you it is likely that another will. It’s always best practice to keep an eye on your credit file and there are several agencies that the lenders use when reviewing your past history, most notably Equifax, Experian, CheckMyFile and ClearScore being the most used.
Will Applying for an AIP Affect My Credit Rating?
It’s important to be aware that if you decide to get an AIP, it could affect your credit score. This is because a form of check – either ‘hard’ or ‘soft’- usually has to take place in order for the application process to be complete. Whilst lenders and mortgage advisers may use soft checks so as not leave any visible trace on your records, applying several times within a short space of time can still have an adverse effect on your credit rating.
Understanding the difference between soft and hard credit searches can be an important part of managing your finances. Soft checks are done by lenders to assess eligibility for specific products, which you will be able to see on your own report but have no effect on your score. On the other hand, a hard search occurs when submitting an application for a loan or credit – it is visible to everyone and may temporarily reduce your rating (depending how often you borrow). So think carefully before taking out any loans!
How Does My Credit Score Affect My AIP?
Your credit score is more than just a number – it’s an indicator of your financial reliability. It can be the difference between getting accepted on favourable rates on loans and being turned away, so taking steps to keep yours high pays off in the long run.
How Can I Improve My Credit Score?
Your credit score is strongly impacted by how you manage your money and debts – for better or worse. Positive actions such as paying bills on time, establishing a good relationship with lenders, and being registered to vote can all play an important role in ensuring that your financial profile reflects healthy borrowing behaviour. On the flip side; missing payments, defaults or other delinquent activities could have significant implications when it comes to obtaining new lines of credit further down the road.
In summary securing a mortgage can be an exciting process, however it’s important to know your finances before you start searching for properties. An Agreement In Principle is the first step in this journey and allows you to determine if mortgage funds are available. Once you have found your perfect home and your offer has been accepted it’s then time to submit your full application.