What is a mortgage in principle?
A mortgage in principle, also known as an agreement in principle and decision in principle, is a document that says how much money a lender is happy to loan you in order to buy a house. When you are ready to buy a property, a mortgage in principle will determine how much you can afford and show sellers that you are in a position to buy. However, it is important to remember that this is offered in principle.
When you make a formal application for a mortgage, the lender can adjust the amount of money offered or can even decide not to grant you the loan (if your financial circumstances change.) You may also find that the interest rates have changed and you could find a better deal elsewhere.
How to get a mortgage in principle?
In order to receive a mortgage in principle, you will need to approach a mortgage lender directly or via a mortgage broker.
Even though this is not a full mortgage application process, you will still be required to provide some information and documentation.
Generally, you will be asked to provide:
- Your full name
- Your date of birth
- Income and outgoings
- Three years of address history
Some mortgage lenders may ask you to provide different documentation to those listed above. It is best to contact your lender to see what information you will be asked to provide before applying. This will help to speed up the process.
How long does a mortgage in principle last?
A mortgage in principle will usually last between 60 – 90 days. Before applying, it is a good idea to ask your lender when this document will expire.
During this time period, if any of the information you provided during the application process changes, you will need to check with your lender to ensure that your mortgage in principle offer is still valid or if you will need to apply for a new one.
Does a mortgage in principle affect credit ratings?
When you apply, the lender will run a credit check to assess your eligibility. Some lenders may make ‘soft searches’ and others may undertake ‘hard searches.’
If the lender runs a ‘hard search’ this will leave a footprint on your credit record. Having too many hard searches on your credit report can have a negative impact on your credit score as it could signal that you are struggling to get accepted by lenders.
However, if a lender runs a ‘soft search,’ this will not leave a footprint and will not affect your credit score.
Before proceeding with a mortgage in principle, it is best to ask your lender whether they run a soft search or hard search during the application process.
Do you need a mortgage in principle to make an offer?
While a mortgage in principle is not compulsory, it can help to speed up the home buying process as you will know how much you are likely to be able to borrow. A mortgage in principle also highlights to sellers and estate agents that you are serious about purchasing a home.
Does a mortgage in principle guarantee a mortgage?
It is important to remember that a mortgage in principle does not guarantee that your application for a mortgage will be accepted. It also does not make any guarantees about the amount that you can borrow.
In some cases, the initial credit checks are limited and therefore, the lender will not have a full overview of your financial situation. When you apply for a mortgage, these credit checks will be more in-depth and so the lender can alter the amount they are willing to give you and can decide not to grant you the loan.
Further advice on mortgages can be found in Propertynews.com’s complete guide to understanding mortgages.
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