Getting a Mortgage Agreement in Principle

A mortgage agreement in principle (AIP), also called a decision in principle (DIP), is an official estimate from a lender on how much you could borrow on a mortgage. This guide will help you understand what a mortgage agreement in principle is and why you need one, in addition to when and how to apply for one.

What is a mortgage agreement in principle?

A mortgage agreement in principle is a written indication from a lender stating how much in principle they’d agree to lend you towards a property. A mortgage in principle will give you an approximation of what you can borrow, so you know how much you can afford. This is useful to know before you start searching for a property.

An AIP is not a binding agreement as you could later be refused for a mortgage for the amount. However, it’s still a useful indication of what you likely will be able to borrow. This provides a starting point for your property search.

Why do I need an AIP?

Some buyers and property investors wonder why they need to get a mortgage agreement in principle instead of just applying for a mortgage once their offer has been accepted on a property. It’s quicker and easier to get an agreement in principle and usually doesn’t cost any money to get. 

If there are no hitches, you can often get one in only an hour. It usually takes only a few days at most. Additionally, an agreement in principle reduces the risk that you’ll apply for too big of a mortgage and get rejected, which is bad for your credit.

Having a mortgage agreement in principle will show you’re serious when viewing properties. And it puts you in a good position if you want to make an offer on a property. Some sellers, estate agents and developers will only take you seriously if you have a mortgage agreement in principle in place. And some won’t let you view a property until you have this. Most buyers and investors are also required to have this in order to reserve a new-build property

An agreement in principle can even make you a more attractive buyer, which can go a long way when the property market is moving quickly like it currently is with the stamp duty holiday in place. Additionally, it can also save time in the buying process. Your offer can be formally accepted quicker, and it can also speed up the mortgage application process.

When should I apply for one?

It’s best to apply for a mortgage agreement in principle as soon as you start seriously hunting for a property. This ensures you are prepared in case you find a property you want to put an offer on and helps ensure you won’t miss out on a property you wish to buy.

Keep in mind that these agreements are usually valid for between 60 and 90 days. This is dependent on the lender. If you still haven’t found the right property in that amount of time, you will need to reapply. Additionally, an offer can change depending on a range of factors. If any of your financial circumstances change, it is recommended to reapply as this will impact the agreement. 

How to get a mortgage agreement in principle

To apply for a mortgage agreement in principle, you’ll apply through a mortgage broker or lender. It’s often recommended to do this through a broker as they have access to a greater range of mortgages than just a single lender. They can also help you find the best mortgage for you and your financial situation, so you already know which mortgage you want to apply for. 

When applying for a mortgage agreement in principle, you will be asked a number of questions about your income, spending and any existing debts. This will help lenders give you an idea of what you could borrow. You’ll need to provide personal information, including your name, date of birth and your addresses from the past three years.

Some initial checks will then be undertaken to see if you are likely to meet eligibility criteria. When applying for a mortgage agreement in principle, you typically won’t need to provide supporting documents at this point. However, this will need to be provided when officially applying for a mortgage offer.

With an agreement in principle, there is no commitment. If you have been approved for an AIP, you are not tied to apply for the specific mortgage or to even use that lender. But keep in mind that it can save time to apply for an AIP with the mortgage you intend to apply for once you have an offer accepted. 

Check out our guide on how to get a mortgage for more information on the mortgage process. We recommend seeking out professional advice from a mortgage advisor or broker when getting a mortgage or an agreement in principle.

Posted on 10th May 2021