Looking to buy your first property or move home? You might be wondering how much you could get as a mortgage, you’ll probably want a mortgage in principle.
Approaching a lender to get a mortgage in principle is a good first step to obtaining a mortgage.
In this article, we look at mortgages in principle as well as how and why you might need to use them.
What are mortgages in principle?
First things first, a mortgage in principle is the same as an agreement in principle or a decision in principle. No matter which term your prospective lender uses they are referring to the same thing.
They are a means for a provider to make an initial assessment of your circumstances, including income, outgoings and credit ratings. By doing this they can provide a tentative agreement as to how much they will lend you in theory.
As we said, getting a mortgage in principle can give you a clear idea of how much you could borrow and the price range you should be looking at when searching for your home. It also means that:
- You know you can borrow the money based on your circumstances before you make any offers.
- It gives estate agents confidence that any offer you might make on a property is viable.
- It may put you in a better negotiating position compared with someone who doesn’t have an agreement in principle in place.
Lenders will base any mortgage in principle decisions on Loan-to-Value (LTV), affordability, adverse credit, income and deposit.
How long does a mortgage in principle take?
Whether you go directly to a mortgage lender or apply through a broker, getting a mortgage in principle from a lender is relatively quick and for straightforward applicants, it could only take 15 minutes. You will need to have the right documents and information ready though.
To get a mortgage in principle you’ll need to provide detailed personal information so that providers can determine your situation. There are so many factors that make lending criteria complex, including:
- Employment status
- Credit ratings
- Type of property
In terms of documents you’ll need to provide, in most instances you’ll need:
- Proof of ID (in date) i.e. passport or driving licence
- Proof of address (within the last 3 months) i.e. utility bill, council tax or statements
- Proof of income usually payslips for the last 3 months
- Accounts if you’re self-employed from the last 3 years and tax returns
- Proof of outgoings usually from bank statements from the last 3 months
- Proof of deposit
- Credit reports if you have any adverse credit declared
- Details of the new property including type and year of build
- Details of estate agents
- Solicitor contact details
Providing these details as accurately as possible means that you’ll get the best recommendations. Failing to disclose details such as previous credit issues could mean you’ll be declined.
Bear in mind that you stand in a better position if you check what’s on the market and the criteria of lenders. There may be better and more appropriate deals with other providers but you may not fit the criteria of all lenders, depending on your circumstances. Speaking with a broker who already knows the market means they can assess your circumstances and find lenders appropriate to you with the best deals.
How long does a mortgage in principle last?
Normally an agreement in principle from lenders last between 60 to 90 days.
As it’s a live system any change in circumstances during this time will affect any further application you make for a mortgage.
What happens when a mortgage in principle expires?
If your circumstances haven’t changed there’s no reason the same lender wouldn’t re-approve you. Resubmitting should be a relatively quick and easy process.
Do you need a mortgage in principle to make an offer?
You don’t have to have a mortgage in principle to make an offer on a property. However, they can strengthen your position and prove that you’re a serious buyer.
You may be asked for proof or evidence of a mortgage in principle when making an offer on a property to ensure it’s a credible one.
How reliable is a mortgage in principle?
An agreement in principle does not guarantee you a mortgage it is simply an estimate of how much you could borrow based on the information you’ve provided. The system may have approved you initially, but you will need to verify figures and have your application properly assessed.
Once you have your mortgage in principle, you’ll need to consider the following for your full application:
- If all the details you provided are correct i.e. your address history
- That you can provide the relevant documents required to verify your circumstances
- Whether anything in your credit report has changed
- If any further credit searches will show any adverse history not accepted by the lender
- If the property you’re looking to purchase is within accepted property types
At the end of the day, it’s the underwriters who make the decision on your application. It’s therefore important that the information you provide is accurate so there are no hidden surprises that may cause problems when you make a full mortgage application.
Can I get multiple mortgages in principle?
When you request an agreement in principle lenders will undertake a credit search as part of their assessment. Depending on the lender’s process they will either do a ‘soft search’ or a ‘hard search’.
What does this mean for you?
‘Soft searches’ don’t leave a mark on your credit file; they are just an enquiry and not an application for credit. ‘Hard searches’ on the other hand show up on your credit report as an application for credit.
Too many of these ‘hard search’ footprints in a short space of time on your file can impact your credit score and therefore affect the ‘hard search’ performed when you make a full mortgage application. This is why it’s best to limit the number of agreements in principle you obtain.
Speaking with an experienced broker who has access and knowledge of whole of market lenders and their criteria means you can see what your chances of acceptance are before you approach providers. They can put you in front of the right lender based on your individual circumstances from the start.