There are many steps to buying a home, all of which can be overwhelming and sometimes difficult to understand, especially if tackling it alone. Whether you’re a first-time buyer or a seasoned house buyer, it is still one of the biggest financial decisions you can make.
One important step in the mortgage process is getting a mortgage in principle. If you have already started the journey, you may have heard this term in passing, but we thought it would be helpful to explain what a mortgage in principle is and just why it’s so important to get one.
What is a Mortgage in Principle?
A mortgage in principle (MIP), also known as an agreement in principle (AIP), is essentially a statement from a mortgage lender that they will provide you with a specific amount of money to purchase a home, aka, a mortgage. It is not a guarantee of the loan amount, but the information you provide on the application is what determines the amount they are willing to lend.
It is only when applying for a full mortgage will the lender carry out full credit checks and if your circumstances have changed since you got your mortgage In principle, or you were not forthcoming about issues on your credit file, your mortgage may be declined.
How Does a Mortgage in Principle Work?
To get a Mortgage in Principle, your lender will ask questions about your finances and look at interest rates to work out what you can afford to repay. Again, it is not a guarantee of the money stated, but it could help you understand the amount you could borrow before you apply for a mortgage. With the figure given to you by your lender, you can then view houses within your budget and give you a head start over others who have yet to agree on their finances.
How Does it Differ from a Mortgage Offer?
The mortgage in principle is a guide to how much a lender is willing to lend you based on the information you have provided around your current debts and earnings. A mortgage offer is an official document from your lender confirming they’ll give you a mortgage for a specific property. This is provided a full mortgage application has been carried out, alongside a full credit check from your lender.
How Long Does a Mortgage in Principle Last?
A mortgage in principle usually lasts for around 30 to 90 days, depending on the lender. If you don’t find a property within that timeframe, it’s sometimes possible to renew the term or you may need to reapply.
Does a Mortgage in Principle Affect Your Credit Score?
This is dependent on the lender as they all work differently. Many will only carry out a soft check on your credit report for a mortgage in principle, which isn’t usually referenced on your credit file. Hard searches are recorded and may adversely impact your credit score so you should always ask what kind of check they will carry out when applying for a mortgage in principle.
Why Do You Need a Mortgage in Principle?
Some of the key reasons obtaining a Mortgage in Principle is crucial include:
- Gives You a Clear Budget - a Mortgage in Principle helps you understand how much you can borrow, allowing you to set a realistic budget for your property search and avoid wasting time on homes outside your price range.
- Shows You’re a Serious Buyer – buying a house is competitive, so having a Mortgage in Principle can indicate to sellers and estate agents that you are in a position to secure a mortgage.
- Streamlines the Buying Process – it allows you to move more quickly once you find a property you like since the lender has already performed the basic financial checks.
- Avoids Disappointment - having a Mortgage in Principle before house hunting reduces the risk of falling in love with a property that you can't afford.
Get Help with all Aspects of the Mortgage Process from a Trusted Mortgage Advisor in Manchester.
We advise applying for a mortgage in principle through a mortgage broker to make the process as streamlined and stress-free as possible. We are an independent mortgage broker in Manchester, also operating all over the UK, and we possess the knowledge, experience, and expertise to help you with this crucial and exciting stage of your house-hunting journey.
As a specialist mortgage advisor in Manchester, we have access to lenders with the best rates on the market today. So, get in touch no matter your location, and let’s see if we can get you the house of your dreams.
