What Do You Need For An Agreement in Principle?

An agreement in principle (AIP) is an important first step in the mortgage application process. Once passed this point, you can more confidently make a firm offer on a property, based on the estimate of what a lender could be prepared to let you borrow, and on what terms.

By following this guide you’ll have a better understanding of what the process of getting an AIP involves, why it’s so important and where to look for any assistance you might need.

What are you looking for?

What is an agreement in principle?

An agreement in principle (AIP) is a critical part of buying a new home. In effect, it’s an official estimate from a mortgage lender of how much they’re prepared to let you borrow, as long as all other requirements are confirmed.

AIPs are often referred to as a mortgage in principle, mortgage promise, decision in principle and an approval in principle. In home buying terms an AIP is similar to a first job interview. You’re a step closer to getting your foot in the door but you’ll inevitably be facing tougher scrutiny in the next round.

Although many mortgage lenders view the AIP stage as a mandatory step in the mortgage process, others don’t see it as essential and are happy to move straight to full application.

Why is it important?

Although not always mandatory, there are several reasons why an AIP is important:

However, it’s worth bearing in mind that securing an agreement in principle doesn’t guarantee a mortgage. The lender could still turn you down when you submit the full application, which is why it pays to do your homework to get over that first hurdle.

How to get an Agreement in Principle

Getting an AIP is a relatively straightforward process. Essentially, the mortgage lender makes provisional checks to determine whether you can afford to borrow the amount you’re asking for.

To do this, lenders will need to see:

If you apply for a mortgage from your current account provider, an AIP can often be made within 15 minutes. This is mainly because your bank already has evidence of your income and outgoings and knows what you can afford to borrow.

However, there’s no guarantee that using your existing bank or building society will mean you’ll secure the best rate offer available. The best way to do this is by using the services of an experienced mortgage broker.

Depending on the lender, and whether you go through a mortgage broker or not, a decision can sometimes take a few hours and in rare cases, a few days. Once you have your AIP you know roughly how much you can borrow and will be taken more seriously by the seller and estate agent if you decide to make an offer.

Credit checks required for an agreement in principle

Applying for a decision in principle means the mortgage lender will need to carry out a credit check.

Essentially the lender wants to know…

It’s a good idea to download your credit reports before approaching a lender so you can review your credit scores and amend any outdated and/or incorrect information which may be on the report.

What’s the difference between a hard search and a soft search?

There are two types of credit check – a soft credit check (or soft search) and hard credit check (or hard search).

Most lenders run a ‘hard’ credit search before offering you an agreement in principle. This is a search that leaves a mark on your credit file. So, you don’t want to apply for several AIPs at once.

Too many ‘hard’ searches in a short space of time raises concerns that you’re desperate to borrow. However some lenders will run a soft search, which doesn’t impact your credit rating.

Which is why it makes sense to speak to a mortgage broker, particularly if you’re concerned about securing a mortgage in principle due to bad credit. They’ll already know the best lenders to approach based on your circumstances and advise on any additional information that could help swing the decision.

You’ve received an agreement in principle – what next?

Once the lender has offered you an AIP it’s time to get searching for a property, assuming you haven’t found one already. You’ll now know precisely what properties are in your price range. And once you’ve found that dream home you can put in a serious offer.

Don’t pop the champagne just yet, though. In rare cases, you may find that the lender who offered you a mortgage in principle has changed its lending criteria. Which means you need to find another mortgage provider.

On the flipside, you’re under no obligation to proceed with the lender that’s offered you an AIP. A better interest rate might become available from a different lender. So, don’t stop looking just because you have one AIP in place.

Better still – ask your broker to look for you! Saving you a lot of time and, potentially, some money too.

What if your agreement in principle was declined?

The most important point is to not panic. There are a number of reasons why you may have been turned down for a mortgage in principle. Such as:

Admittedly, some reasons are more serious than others. However it could be something as simple as forgetting to register for the electoral roll the last time you moved.

If your AIP is declined – speak to a broker. They’ll be able to establish why this has happened and suggest alternatives so you can get your mortgage application back on track.

Get matched with an experienced mortgage broker

It doesn’t matter whether you’re buying your first or fifth property, the mortgage application process can be a minefield. To ensure you get the AIP and, ultimately, the mortgage that is most appropriate to your circumstances it’s best to speak to a professional.

Our free, broker-matching service will quickly assess your needs and circumstances to pair you with a mortgage advisor who’s ideally placed to help you – Make an enquiry to get started.