A mortgage agreement in principle, also known as a ‘decision in principle’, a ‘mortgage in principle’ or a ‘mortgage promise’, is a document from a lender indicating how much they’re prepared to lend you given your current financial situation.
Getting an agreement in principle can be helpful before you start looking for your new home so you know your budget. And you can also use it to prove to estate agents and new home builders you’re a serious buyer.
To obtain an agreement in principle, you’ll need to go to a mortgage lender directly or via a mortgage broker. You’ll be asked to provide the lender with information about your:
- Income and employment status.
- Outgoings and any existing credit agreements.
- Addresses for the past three years.
The lender will then perform a credit check to assess your creditworthiness. Most mortgage companies only carry out a soft credit check. However, some may use a hard check that will leave a mark on your credit files. As several credit application searches on your file in a short time frame can put off potential lenders, avoid applying for several agreements in principle.
Following the credit check, the lender will issue you a document confirming the amount they’re willing to lend. This document isn’t a guarantee of a mortgage offer but an indication.
Some lenders will give an agreement in principle on the same day you apply.
How long is an agreement in principle valid?
An agreement in principle typically lasts for between 30 and 90 days. However, you can usually extend it if you don’t find a property within that time as long as neither your circumstances nor the lender’s criteria have changed.
What are the benefits of getting an agreement in principle?
- Knowing how much you can borrow means you can look for houses within your budget. This knowledge will save you time and potential disappointment if you find your dream home and discover you can’t afford it.
- If you have had credit issues, you can find out in advance if this will be an issue and, if so, avoid house hunting in vain.
- It shows estate agents and sellers that you can, on paper, afford to buy a property. This factor can make you a more attractive buyer, putting you in front of other prospective buyers.
Once you’ve found the property you’d like to buy, you’ll need to submit a full mortgage application. If this is successful, you’ll receive a formal mortgage offer and can proceed with your house purchase.