Why a mortgage in principle is a must for homebuyers
Buying a house isn’t as simple as most of the purchases you make in life. However, once you understand the process, you can take steps to simplify each stage and give you the best chance of buying the new home you want.
Typical stages of buying a home:
- Obtain a mortgage in principle.
- Conduct a property search from the properties in your price range.
- Make an offer on your chosen property.
- Have your offer accepted.
- Achieve approval from your preferred mortgage provider.
- Carry out the legal processes, administration, and purchase through professional services.
- Exchange contracts, complete the sale, and receive the keys.
What is a mortgage in principle?
The first step in the buying process is to obtain a mortgage in principle.
This is a certificate that shows how much you can borrow, provided either directly from the lenders or by mortgage brokers.
A mortgage in principle shows sellers and estate agents that you’re taking the process seriously, that you’ve done your homework, and, most importantly, you can afford the properties you’re interested in.
We’d always recommend using a broker for a mortgage, as you’re not limited to one set of loans but an entire market of options. You’re also in the best place to take advantage of their experience, receiving professional advice for both standard and specialist applications.
A mortgage broker will make your buying journey far easier, less stressful, and likely save you money.
Is a mortgage in principle the same as an agreement in principle?
You’ll see many websites tell you that they are, but actually, they’re not. They’re very similar products, but there are a few significant differences.
Mortgage in principle – Your MIP is calculated using personal and financial details by a broker or lender to give you a good idea of the type of mortgage you’re likely to be accepted. MIPs are usually provided without a credit check, and it’s unlikely that you’ll have to provide documents.
Agreement in principle – An AIP is provided once you’ve found a property you’re interested in and are ready to buy. This certificate states that the lender provisionally agrees to lend you the money to buy that particular property. You’ll have to answer more detailed questions, provide proof documents, and be open to a credit check.
There are a range of terms that cover similar items
Throughout your mortgage journey, you’ll likely come across several versions of the term that amount to a similar thing:
- Mortgage in principle
- Agreement in principle
- Decision in principle
- Mortgage agreement in principle
After reading this article, you’ll know which stage of the process you’re at and which version applies to you: mortgage or agreement. However, if you’re ever unsure, ask your advisor. Limiting the number of checks made on your credit report is crucial, as they can affect your score. And, with that in mind…
How do soft and hard searches affect my credit score?
There are two types of credit searches: hard and soft.
A soft search is considered an enquiry and won’t affect your credit score.
A hard search is a more significant exploration and will show on your credit report. Too many hard searches will have a negative impact on your score, so it’s essential you keep them to a minimum.
Check with your provider about how they handle your credit searches.
To avoid unnecessary hard searches, check with your broker or provider that their mortgage in principle offer only uses a soft search, if any at all.
In the earliest stages, it’s unlikely they’ll carry out a search, taking your word for your score, just as they will your income. It’s more likely they’ll carry out credit searches at the agreement in principle stage or when they make an offer after an application.
What information do I need to apply for a mortgage in principle?
In the earliest stages, your MIP provider will need to know your:
- Income and employment status
- Savings total
- Deposit amount
- Approximate property value
- Regular monthly outgoings and spending
What information do I need to apply for an agreement in principle?
You need to provide more detail and proof as you advance through the process. For an agreement in principle, the provider will need:
- Valid ID – passport or driving licence
- Proof of address – likely from the past 3 months
- Bank statements – to show your monthly income versus outgoings
- Evidence of any other credit and their repayment schedules
- The property details
- Estate agent details
Do I have to have a mortgage in principle?
It isn’t a legal requirement, so you don’t, but you’ll be heading for heartache or trouble without one.
Most buyers make assumptions about how much they’ll be allowed to borrow, and most of the time, they get it wrong.
Yes, lenders offer up to 6 x the borrower’s salary, but more likely around 4. If there are any complications or blemishes on your financial history, or you’ve got a small deposit and high LTV, you might only achieve 2 or 3 x the borrower’s salary. Depending on your job or previous credit issues, they might not even offer you a mortgage.
Then there are your regular outgoings to consider; how much money you have left over at the end of the month isn’t always as attractive as your income suggests.
Your MIP includes those details, and your suggested price range is far more accurate. As a result, you’ll have more clout with estate agents and carry the respect from sellers you want.
How soon will I receive my certificate?
It depends on how you make your application. Some providers have online systems with an almost immediate return, and plenty of brokers and providers provide a certificate within hours or a few days for those requests with complications.
How long does a mortgage in principle last?
Usually, you’ll get 60 or 90 days of grace, but don’t worry if you run out of time; you can renew your MIP pretty easily.
Beware, though, that your MIP isn’t a guarantee. As it states, it’s an offer ‘in principle’.
If anything happens after the certificate is provided, for example, you change or lose your job, you take out further credit, you default payments, or suffer another financial loss, the terms your MIP was built on are no longer correct, which voids that version. You’ll have to re-submit with your new details to determine if the figure still stands or how it will be affected.
What if I get rejected for a mortgage or a mortgage in principal?
The first thing we’d say is, don’t panic. Not everyone can have a perfect application. Life is complicated, and thankfully, mortgage providers understand that.
As specialist mortgage brokers, we work with lenders who appreciate what it takes to be a single parent, self-employed, have had problems with money in the past, have an inconsistent income, and for any other eventuality. So we look deeper than the first figures suggest and match you with a lender who will help you achieve the amount you need to buy your own home.
Get in touch with our advisors, and we’ll walk you through a mortgage in principle, showing you precisely how much you’re likely to secure and which lenders will be the best bet in your circumstances.