When you’re buying a property, there is plenty to consider, and it can be a daunting process – especially if you are a first-time buyer. One of the first things you should consider during the home purchase process is an Agreement in Principle.
But what exactly is an Agreement in Principle (AiP), and how do you get one? Read on to learn all about AIPs, including how you get one, whether an AiP affects your credit score, and if it means that you’ll definitely be accepted for a mortgage.
What Exactly is an Agreement in Principle?
An AiP (Agreement in Principle) is essentially an indication from your mortgage lender that they could give you a mortgage (in principle), up to a certain amount.
You may also have heard of the terms ‘Decision in Principle’, ‘Approval in Principle’, and ‘Mortgage Promise’ – these all mean the same thing, and are indications of how much your lender would be willing to lend you.
This allows other parties during the home purchase process (for example, estate agents) to know that you’re able to get a mortgage and that you are in a financial position to buy the property in question.
However, an Agreement in Principle is not a binding contract or agreement – it simply shows that you are able to afford a property and that your lender would be happy to approve the mortgage in principle.
An Agreement in Principle lasts for 90 days – so if you’re putting off buying a house, then you may want to get another AiP. An AiP is only relevant if there are no changes to your income, spending, and debts. If your financial situation happens to change before you complete the house purchase, you may want to complete another AiP – as it could have an effect on the outcome.
How Do I Get an Agreement in Principle?
To get an AiP, you need to decide what lender you want to go with. In 2022, there are countless mortgage providers. If you’re applying to a bank or a building society such as Lloyds, Halifax or Natwest, simply arrange an appointment at your local branch.
You can usually apply for an Agreement in Principle online or over the phone with most lenders, which can be convenient. You’ll need certain details to hand such as your salary or income, the amount you’d like to borrow, and an estimate of your monthly costs (e.g credit card bills).
Upon submitting your application, your lender will run a credit check on your credit file to determine your financial status, and to gauge your creditworthiness. You’ll then have an insight as to how much your lender will be willing to lend to you.
Will an AIP Affect My Credit Score?
Depending on your lender of choice, an Agreement in Principle may have an effect on your credit score. This is the case if the lender does a hard credit check/ a full credit check on your credit history – which is an intensive search. This can have a negative impact on your credit score if your lender of choice rejects your application.
However, many lenders will do a soft search on your credit information – which essentially means that they will check your credit report but the results won’t have an impact on it if rejected.
If you don’t want your credit score to be impacted, be sure to find out what kind of check will be conducted on your credit file – especially if you have previous negative marks in your credit history or think you may be rejected.
Does An AIP Mean I’ll Definitely Be Accepted?
An AiP is not a guarantee that you will get accepted for a mortgage – it works as a guide to let other parties during the house purchase process know that you will get accepted in principle. It lets other parties such as estate agents know how much you’ll get accepted for, and proves that you’re a serious buyer.
Having an Agreement in Principle doesn’t always mean that you will be accepted for a mortgage – you may have an AiP and not receive a mortgage. For example, your lender may decide that there are certain restrictions on the home you’re planning on purchasing. You may also decide against buying a property, rendering your Agreement in Principle useless.
If you want expert house purchase advice, whether you’re a first-time buyer, you’re buying to let, or you’re opting for a shared-ownership mortgage, our dedicated team at LTC Mortgages can provide you all the advice and support you need on your property purchase journey.
Liam Coker is a highly skilled mortgage and protection specialist who delivers excellent customer service. His knowledge of the mortgage industry is key to finding the correct solution for people’s specific needs.