What is a Mortgage Agreement in Principle?

The word MORTGAGE written with scrabble like letters on a wooden surface

A Mortgage Agreement in Principle (AIP) is a statement from a lender saying that they’ll lend a certain amount to you before you’ve finalised the purchase of your home. An AIP shows sellers that you can afford the property you want to buy and helps them make the decision to accept your offer. It is also particularly helpful to property sellers if they are deciding between more than one offer and it can tip the scales in your favour if you are the buyer who has the AIP.

An AIP also provides the buyer with a clearer idea of how much you can afford to borrow and therefore spend on a property purchase, allowing you to search for properties within your price range. It is also useful if you are thinking of remortgaging and want to find out how much more you could possibly borrow based on the equity you already have in your property.

Here are some FAQs about AIPs.

1. What does a mortgage agreement in principle mean?

The AIP is a written estimate or statement made by a lender to say how much money it would lend you if you were to buy a property. It is not the same as a formal mortgage offer so you will still need to apply for a mortgage once your offer has been accepted.

2. How do I get an AIP?

You can apply at the bank or building society branch as well as over the phone and online. You’ll need to provide some information including your salary, how much you’d like to borrow and a rough total of your monthly expenses.

You can get an AIP from one lender and go on to get the actual mortgage from a different lender.

3. Are AIPs compulsory when making an offer on a property?

It is not usually essential to have an AIP but some estate agents and sellers might insist on them and are more likely to take your offer to purchase more seriously if you do have one.

4. Will applying for an AIP affect my credit rating?

A mortgage lender will need to check your credit history to ascertain how much you can afford to borrow and whether they are willing to lend to you. Many lenders will carry out a soft check which won’t affect your credit rating. Some lenders do however insist on running hard checks which leave a footprint on your credit file which could lead to a negative impact on your score if carried out multiple times. Be sure to find out which type of check your chosen lender for an AIP runs, so that you can make an informed decision.

5. Making a full mortgage application

When making a full mortgage application, you will need to provide more detailed personal information. A more detailed analysis of your finances will be carried out. The lender is not obliged to lend you the same amount that is outlined in the AIP. The mortgage offered will be based on what the lender believes you can afford to pay at the time the application is made.

If you’re planning on applying for an AIP or a full mortgage, you can get free advice here at Propillo.

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