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6 things you need to know about a mortgage agreement in principle (AIP)

March 25, 2021
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When applying for a mortgage, many lenders will advise you to secure something known as an agreement in principle. Since the mortgage process requires you to learn lots of new phrases and terms, we want to spend a little bit of time exploring what this means.

At Niche Mortgage Info, we provide advice and support to prospective homebuyers looking to secure a great deal on their mortgage. In many cases, we will help them to secure an agreement in principle first using one of our specialist mortgage brokers.

If you are a first time buyer and have been advised to get an agreement in principle, read on to discover what this means.

How Long Does A Mortgage In Principle Last?

An agreement in principle will typically last around 30 days. Some may be valid for 90 days. Lenders will usually make it quite easy to renew the agreement, but the longer you leave it, the more chance there is that your accounts will change month-to-month.

Every time you run your application for an agreement in principle, this will show up on your credit report. This can affect your status and cause a drop in your credit score. Don’t be pressuring into running one earlier than you need to by estate agents or sellers.

What is an agreement in principle?

The agreement in principle gives you the confidence to move forward with your home search. It offers reassurance that lenders are likely to accept your mortgage application based on your income and finances.

Remember that it isn’t a final decision and the application could still fail during the full application, but it is often a good sign that you have found a lender willing to work with you.

A mortgage in principle is followed up with a full mortgage application once you have found a property you want to purchase. The information provided for the mortgage in principle will be revisited, so you must be accurate and honest in your initial application. A mortgage underwriter may have some doubts if it is found that your initial application for a mortgage in principle was found to be inaccurate.

If you haven’t been offered a mortgage in principle but have instead been offered an agreement in principle, don’t worry. These are the same things and serve the same purpose.

Not every agreement in principle is created equal, and they do not offer a guarantee that you will be able to secure the funding to purchase a home. It may be that the final amount offered is lower than you were expecting, so don’t get too attached to a property until you have secured a full mortgage offer.

These are six things it is helpful to know about mortgage agreements in principle before moving forward with your home search.

Secure your agreement in principle as early as possible

You don’t have to have a property in mind to be able to secure your agreement in principle. Instead, you just need to make some decisions about how much you can afford to repay every month, how much deposit you can offer and perhaps a rough idea of your budget. A flat will cost significantly less than a house, so deciding on this simple matter will help to shape your search. Once you know what is affordable, you can start to think about which lenders will be most likely to accept your application.

Be aware of conflicting advice

When you start looking for a home, you may find that everyone has unhelpful advice to share. While the majority will be harmless, some people have a conflict of interests. The estate agent selling a home may offer unwelcome mortgage advice that you would be best to steer clear from. Their interest is only in selling the home as quickly as possible so they can secure their commission. They don’t care if you get a good deal on your mortgage.

Be prepared before you start your home search

Some sellers will only accept viewings from those with an agreement in principle. This helps to reduce the number of people visiting their home speculatively. And if you decide you want to put in an offer, many estate agents will not take the home off the market unless you have an agreement in principle. This helps to protect them if the mortgage application falls through.

Get your accounts in order

You not only need to have your accounts for the agreement in principle application, but you also need to keep them in order until the final application. Big changes to your finances can derail an application and raise additional questions which can delay the process and risk the seller pulling out.

Keep a close eye on your finances during this time and make sure you are living within your means. Try to end each month with a surplus in your account, stay out of your overdraft and avoid borrowing money from friends or family.

Aim for the maximum amount

While you might not end up using the full amount, it broadens your options and improves your negotiation power if you have an agreement in principle for the maximum amount. A mortgage broker can help you to determine how much to apply for to increase your chances of being accepted.

If you need help understanding the steps in securing a mortgage agreement in principle, Niche Mortgage Info can help. We can connect you with the lenders most likely to accept your application and maximise your chances of getting on the property ladder.

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