It could be that you are on the hunt for your first home, or contemplating purchasing your second property – and the term “mortgage in principle” has reared its head. In this guide, we will discuss what a mortgage in principle is, and how best to use it.
What is a Mortgage in Principle?
A mortgage in principle is also known as an agreement in principle, or decision in principle. It can be obtained by your bank or lender, and they will state how much they would be willing to lend you.
It isn’t a binding contract however it will give you a good indicator as to how much you will be able to borrow, and it’s something that an estate agent would look upon favourably.
Why Should I Apply for a Mortgage in Principle?
Obtaining a mortgage in principle isn’t a long-drawn-out process it is fairly simple and shouldn’t take any longer than a few days.
It is much quicker to do this than simply going ahead and applying for the mortgage straight away and means you can then relax and enjoy your house hunting with a better idea of your top-end budget.
Is a Mortgage in Principle Needed?
A mortgage in principle isn’t a necessity however knowing what lenders will be able to give you is an advantage when viewing properties. It could be that you can afford more than you initially thought, or it could be that you need to scale back a bit.
It’s also not uncommon for estate or selling agents to take your offer less seriously if you don’t have a mortgage in principle to back it up. It also eliminates the risk of choosing a property, having your heart set on it – and then not being able to go ahead with the purchase because your offer was rejected.
At Which Point Should I Apply for a Mortgage in Principle?
You should apply for a mortgage in principle at the beginning stages of your house hunting journey. Your certificate could include that you have been accepted for the amount you have applied for or a statement confirming the maximum amount of money that they will lend you.
Will it Affect My Credit Rating if My Application gets Rejected?
To go ahead with a mortgage in principle application, the lender or bank will need to perform a credit check. Depending on the lender, they could perform a “soft search” in which case – a footprint won’t be left, and it wouldn’t affect your credit if your application is rejected.
However, if they perform a “hard search” – this will mean you are effectively applying for credit. It won’t affect your credit rating, but it could mean that other lenders will be able to see that you have applied for a mortgage in principles and had it rejected.
What do I need to apply for a Mortgage in Principle?
A lender will need to know some basic info such as income, credit history, and what size of deposit you have. As such, it will be useful to have some of the below info at hand:
- Info regarding your income such as payslips, recent bank statements – or if you are self-employed your company accounts
- Details of your spend such as utility bills, outstanding credit card bills, or regular standing orders and subscriptions
- Your previous addresses going back 3 years
If I get My Mortgage in Principle How Long will it Last?
If you are accepted for a mortgage in principle, typically it will last 60-90 days, however this is dependent on the individual lender. If you haven’t yet put an offer in for a property, then you could need to renew this, however this would be a straightforward process unless any of your details change.
If you are looking to get a mortgage in principle but would like some advice – or would just rather we took care of the entire process for you – please get in touch.