Agreement in Principle
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Agreement in Principle (Part 1)
Ollie Callister explains how an Agreement in Principle works.
What is an Agreement in Principle or AIP?
Essentially an Agreement in Principle is a credit check. When we go through and complete our fact-find appointment, and we’ve found the most suitable lender that fits your circumstances, we’d look to complete an Agreement in Principle. It should hopefully give you the confidence that you can borrow what you need to buy your new property.
Each lender works in a different way, so no one actually knows the exact details of how each lender carries out their scoring. Only a small number of people inside a bank or building society know that, but we do know what makes a good credit score.
Lenders also take their information from Experian, Equifax or Transunion. It could be one or more of those. Most importantly, an Agreement in Principle is not a full mortgage offer. Everything is still subject to underwriting and a satisfactory valuation on the property.
An Agreement in Principle is also known as a Decision in Principle (DiP), a Mortgage Promise or a Mortgage in Principle. They’re all the same thing – typically it’s just a credit check with a specific lender.
What should I do if my estate agent is asking to see my Agreement in Principle or AIP? How do I get one?
Most agents will ask to see an Agreement in Principle. The way we work is to get you ‘mortgage ready’. We’ll complete that initial appointment, complete the fact-find and then complete the research to find a lender that suits your circumstances. We then complete the Agreement in Principle.
It takes us around about a week from the first appointment to come back to you with that, but if needed we can move quicker. So just get in touch, book an appointment and we’ll take it from there.
Do I have to have an Agreement in Principle through the estate agents I’m looking to purchase through?
You definitely don’t need one through the estate agent themselves. Some estate agents are more pushy than others about speaking to their in-house broker, but it isn’t necessarily needed. You might decide to go along that journey, but it isn’t a requirement. You can get an Agreement in Principle with any broker, or direct with a lender.
How reliable is an Agreement in Principle? How long does an AIP last?
An Agreement in Principle is based on the information you give us – such as your income figures, name, address, etc. and that’s compared against your credit score. Assuming you give us the correct information, it will hopefully come through with a pass, subject to meeting the lender’s credit scoring.
That’s the initial stage of the process. When you actually find a property and have an offer accepted, we then need to submit a full mortgage application. This involves providing documents to prove your income and carrying out a valuation on the property.
Assuming they’re all accepted, it will go through to a full application. So, although you can rely on an Agreement in Principle for an indication of how much you can borrow, it isn’t a full mortgage offer.
In terms of timescales, typically they last for one to three months. If for any reason it does lapse, I wouldn’t worry too much. Assuming nothing’s changed with your circumstances, we can simply apply for a new one.
Can I make an offer with an Agreement in Principle?
Of course. Before you have an offer accepted, an Agreement in Principle is as far as you can get along the mortgage process. We strongly recommend that you start the process sooner rather than later to get an AIP. Most of the time you will need one to make an offer.
Does an AIP mean you’ll get a mortgage?
An Agreement in Principle does not necessarily mean you’ll get a mortgage. It is a strong indication that you would, but it’s always going to be subject to full underwriting and a satisfactory valuation.
As a mortgage broker, we complete all the relevant checks for the lender. We make sure you’re meeting all their criteria, and as long as we’re told the correct information from the outset, you’ll have the greatest chance of being accepted.
Will I need a credit check? Does an Agreement in Principle affect credit score?
We strongly recommend getting an Agreement in Principle done as early in the process as possible. You don’t tend to need to get your own credit check done, or get a copy of your credit profile unless we flag any potential issue that might require that.
If we’re not given the correct information and it comes back as a decline, we’d recommend getting a copy of your credit file, which is fairly easy to do and we can give you advice around that. We then go off and hopefully find the lender that suits your circumstances.
Completing an Agreement in Principle is typically a soft search, which doesn’t harm your credit score. Only when you’re completing hard credit searches at full application stage will it potentially begin to affect your credit score. You would need to submit quite a few of those in a short period of time for it to have any serious effect.
How do I apply for an AIP and how long does this take?
Book an appointment with one of our experienced advisors. We will run through that initial fact-finding appointment, gather information from you and do the research to complete that Agreement in Principle.
It typically takes about a week from the first meeting to the second appointment, but if you are in a rush and you need it completed sooner, we can move more quickly – subject to availability.
How can a mortgage broker help?
A mortgage broker typically has a lot of experience with regards to checking out the criteria and making sure you’re meeting the lender’s requirements. It’s not just about passing credit scoring, because although you might get an Agreement in Principle, it then takes full underwriting and a satisfactory valuation on the property to get you a full mortgage offer.
If you or the property don’t meet the criteria for any reason, it may not go through. A broker will know if there is something not quite right on your credit profile, and potentially place that case to get you the most suitable product.
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Agreement in Principle (Part 2)
Ollie Callister is back to continue the conversation about an Agreement in Principle.
When should I get an Agreement in Principle?
We always recommend getting an Agreement in Principle as soon as possible. I wouldn’t say years in advance, necessarily, but a good couple of months before you’re looking at purchasing a property.
This way, if you know there’s any issues with credit or anything else, you’ve got time to get these sorted.
What information do I need to get an Agreement in Principle?
When we arrange our initial appointment, we’ll always send you an email requesting some information and documents.
We’ll lead you through the process, but we need basic details such as names, dates of birth and confirmation around your incomes. That might involve payslips or self-employed tax calculations or accounts. Other helpful details are those around debts or credit issues that people have.
How is affordability calculated for an Agreement in Principle?
We always do an affordability calculation to work out how much you can borrow. That should be the same, from the affordability calculators through to the Agreement in Principle. There is a difference between income multiples and affordability.
Completing the Agreement in Principle will run a credit score with that lender. Based on that, we could find that you could actually borrow potentially more or slightly less – you only find out when that Agreement in Principle is run.
Is an Agreement in Principle guaranteed? Can my mortgage be declined after an Agreement in Principle?
An Agreement in Principle is definitely not a guarantee. Lenders sometimes call it a promise, but I wouldn’t say it’s that at all. It’s basically a credit check to confirm whether they’ve got the ability to lend to you or not.
The final mortgage is subject to full underwriting, where you prove your incomes and there is a satisfactory valuation on the property. So although you can have an Agreement in Principle, once you go through the full application process and provide all the documents, it could be that the lender may not be happy to lend that amount – or even lend at all.
It’s definitely worth not banking on that Agreement in Principle. It’s not a guarantee.
Can I get an Agreement in Principle if I’m a First Time Buyer?
Of course. We strongly recommend getting an Agreement in Principle, no matter whether you’re a First Time Buyer or not. As a First Time Buyer, some lenders do require slightly stronger credit scores.
You may also be putting down a slightly smaller deposit, which is going to be harder on the credit score, as well.
By doing your Agreement in Principle in advance, if there issues for any reason, there’s time to make adjustments or changes. You could put yourself on the voters’ roll, for example, to potentially increase your score.
How will bad credit affect an Agreement in Principle?
Bad credit can have a very negative impact on an Agreement in Principle, depending on which lender we go to for your circumstances. The majority of the high street lenders will run a credit search as the basis for the decision.
Some have strict policies around bad credit. If you do have missed payments, defaults, CCJs or bankruptcies, the older they are and the smaller the size can help the situation.
But many lenders out there do accept different situations, so it depends upon the client’s circumstances. We should hopefully be able to find the lender that will suit you.
Is it harder to get an Agreement in Principle if I’m self-employed?
It shouldn’t be any harder than for an employed applicant. There are typically more criteria or checkpoints for a self-employed person, but is normally more around affordability and the documents needed to work out how much you can borrow.
Typically, an Agreement in Principle looks at your credit score rather than those points, so it isn’t typically harder to get for a self-employed applicant.
What are the benefits of getting an Agreement in Principle or AIP with a mortgage broker?
By using a mortgage broker, you should have a range of banks and building societies to go to, so we can find a lender to suit your circumstances.
Brokers typically have a good understanding of how the credit scoring systems work with different lenders. Some have slightly tougher scores than others. We mentioned the self-employed and First Time Buyer side of things – we can help fit you with the right lender.
We understand how the credit profiles work with regards to the voter’s roll, high usage on credit cards or adverse credit. Finding the right lender for that client is something that a mortgage broker should have the knowledge for.
Getting that Agreement in Principle in advance is strongly recommended. Then, if there are any issues, you’ve got time to go and make any changes to help improve your profile.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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What you need to know…
The actual amount you can borrow will depend on your credit commitments, your regular monthly outgoings and how each lender assesses your income.
Lender’s affordability checks can differ meaning that the amount you can borrow may change from lender to lender. That’s where the expertise of our personal advisers comes in and where our independent status benefits you.
The minimum deposit required is 5% of the property purchase price. Most lenders will allow the deposit to come from a gift and some lenders will even consider this being raised via a personal loan. There are government incentives to help boost your savings if you are a first time buyer. Depending on your circumstance you may either need to have a larger deposit or will perhaps want to put a larger deposit down, due to preferable interest rates.
Because we are independent mortgage brokers we will be able to secure you the best deal for your circumstance.
An Agreement in Principle, also known as a ‘Decision in Principle’ will be provided after affordability and credit checks have been approved. An Agreement in Principle is extremely useful to increase your confidence when viewing and offering on properties. Estate Agents will typically want to see an Agreement in Principle before presenting your offer to the seller. Our personal advisers can help you with this.
It’s a requirement of your mortgage to have buildings insurance. This covers the bricks and mortar of the property.
It’s also a good idea to take advice from your personal adviser on protecting you and your loved ones if something bad happens. For example: Life Cover, Critical Illness Cover and Income Protection.
Being accepted for a mortgage does depend on your circumstances. We are experts with all types of mortgages…. We specialise in obtaining mortgages for the self-employed, contractors, construction industry scheme (CIS) workers and those with historic adverse credit (as well as employed people of course). In all these situations we can frequently secure high street deals. Being independent and experts is a real benefit in these circumstances.
Your monthly payments will vary depending to your chosen mortgage term, choice of mortgage product, how much deposit you have and repayment type. It is best to chat with a personal independent adviser to find out exactly what interest rate and term you can secure to give an accurate monthly payment.
Most of the first time buyers we have helped secure a mortgage are paying less on their mortgage than they used to pay on rent. This does, however, depend on circumstances. The mortgage term chosen is a major factor which can be dictated by your age and intended retirement age. Of course, it is also worth noting you are paying back the mortgage and once it is repaid you won’t have any rent to pay.
There are costs associated with purchasing your first home. You will need to pay legal fees and other potential costs include a survey fee, stamp duty (which is a property land tax) and administration fees. There are First Time Buyer government incentives on savings and stamp duty that can help you with raising the monies for a deposit, costs and reducing stamp duty. Our personal advisers can give guidance within a free consultation.