Taking your first step on the housing ladder is a very exciting time, however there are steps you need to take before the home of your dreams is yours, and this includes getting a mortgage in principle.
If you have ever wondered what does a mortgage in principle mean, in our latest blog we will give you more information. Read on as we explain how to get a mortgage in principle and what is involved in the process, plus we also let you know if a mortgage in principle affects your credit score too.
What is a mortgage in principle?
You may have also heard a mortgage in principle called a decision in principle, an agreement in principle, an approval in principle or a mortgage promise. Essentially, it’s a written estimate from a building society or bank that shows you a general indication of how much you can borrow for a property. Once you have it, you can prove that you’re a serious buyer to estate agents and vendors, and this should mean that you can get a mortgage in theory.
How do I get a mortgage in principle?
Getting a mortgage in principle will help you to understand the value of the home that you will be able to afford, and is one of the first steps of the house buying process.
You can apply for a mortgage in principle in several ways:
- By phone
- Visiting your bank or building society’s branch
When it comes to applying for a mortgage in principle, you will be asked to provide several pieces of information by the lender or adviser:
- Your name, date of birth and address
- Address details (going back three years)
- Your income
- Your expenditure and existing credit agreements
Once you have supplied this information, your lender will be able to give a maximum amount that they would be willing to lend you ‘in principle’, and will supply you with written proof of this in the form of a letter or certificate.
How long does an agreement in principle last?
Depending on the lender, usually an agreement in principle is valid for between 30 and 90 days. However, it’s important to note that if it expires before you can make an offer on a house or flat, it is possible for it to be renewed.
Does a mortgage in principle affect credit rating?
Your lender will ask for your permission to run a credit check when you apply for a mortgage in principle. This will either be ‘hard’ (meaning it will leave a footprint on your credit record that other lenders will see and could affect your credit rating in the future), or ‘soft’ (where other lenders won’t see it on your credit file).
You might also be interested to know that as you can get more than one mortgage in principle (for example if you spot a better mortgage rate with another lender), in this instance it is always important to ask whether the potential lender will do a hard or soft search on your credit file. The reason for this is that if too many hard searches take place in a short space of time, your credit score could be damaged, so it is important to keep this in mind.
Mortgage in principle – what can go wrong?
As long as you make sure you supply the correct information when you apply for your mortgage in principle, the chance of something going wrong is very small, However, if you don’t meet a potential lender’s requirements then you could be rejected, or you may find that you are not able to borrow as much as you need, which could be disappointing and is often linked to a poor or limited credit rating.
What else do I need to know about mortgage in principle?
If you want to make an offer on a property, a mortgage in principle isn’t needed. However, as it will give you more credibility with estate agents and vendors, it is worth getting one to give your offer the best chance of being accepted.
Finally, we want to remind you that having an agreement in principle doesn’t mean that getting a mortgage is guaranteed. At this stage, only your credit and affordability has been checked at a very basic level. As yet, the lender’s criteria rules won’t have been checked at all, and it is worth keeping in mind that elements such as the type of income you have (as opposed to the level), the type and location of the property and what you are looking to borrow the money for are all factors that will weigh into the lender’s decision, and could ultimately result in a mortgage offer not being granted.
To help avoid any uncertainty, using the services of a mortgage broker could come in useful. For example, the agreement in principle will only tell you that you might get a mortgage, whereas a broker can tell you if you definitely can, offering extra peace of mind.