If you’re thinking about buying a home in the near future, you may want to consider getting a Mortgage in Principle as soon as possible. Doing so can strengthen your position as a buyer. If you’re wondering what a Mortgage in Principle is and how it’s different to a mortgage offer, this guide will help you understand these two types of mortgage agreements. If you’d like to speak to an advisor about getting a Mortgage in Principle as soon as possible, please book an appointment here. And if you’re looking to learn more about this topic, please read on. In this guide, we explain the differences between a Mortgage in Principle and a mortgage offer, the benefits of each and how you go about getting them.
What is a Mortgage Agreement in Principle?
A mortgage agreement in principle has several names that are often used interchangeably. The most common names for this type of mortgage agreement is a Mortgage in Principle (MIP), an Agreement in Principle (AIP), or a Decision in Principle (DIP).
A Mortgage in Principle is a pre-approval letter from a mortgage lender that signals that they would be happy to lend a certain amount of money to the borrower based on some initial information. It can be a useful tool for homebuyers but it’s not a legally binding agreement, and therefore neither the lender nor the borrower has to abide by it.
Why Do I Need a Mortgage Agreement in Principle?
Although a Mortgage in Principle is not legally binding, and therefore can’t actually be used to buy a property, they are still useful to have early on in the homebuying process. Let’s look at three ways a Mortgage in Principle could help you buy a property.
- Looking for homes within your budget. An Agreement in Principle can give you a sense of how much you can afford, so you can start searching for properties that are within your budget.
- Being able to put down a strong offer. Sellers may be more likely to accept your offer if you have an Agreement In Principle, as it shows that you are serious about buying the property and that you’ll likely be successful in getting the required mortgage.
- Speeding up the buying process. Having an Agreement In Principle can help speed up the buying process, as you’ll have already been pre-approved for a mortgage.
How Do I Get a Mortgage Agreement in Principle?
To get a Mortgage in Principle, you’ll need to provide the lender with some basic information about your finances, such as your income, employment history, and credit score. Our expert mortgage brokers can help you find the right lender and mortgage product and then apply for a Mortgage in Principle on your behalf – simply book a call from an advisor to get started. The lender will then use the information we provide to estimate how much you can borrow and give you a pre-approval letter to show sellers.
The time it takes to get a Mortgage in Principle can vary depending on the lender, but it typically takes a few hours to a few days. It’s worth remembering that an AIP is not a guarantee of a mortgage – the lender will still need to do a full credit check and appraisal before they will issue a mortgage offer, as we’ll discuss below, but it’s a good way of strengthening your buying position in the meantime.
What is a Mortgage Offer?
A mortgage offer is a legally binding document from a mortgage lender that approves you for a specific mortgage amount, term, and interest rate. It’s the final step in the mortgage application process, so you’ll only receive it once your lender has completed all their checks. A mortgage offer provides assurance to the seller that you have the financial means to complete the property purchase, and it’s required to start the conveyancing process.
Once you receive your mortgage offer, you’ll need to accept it to proceed with your mortgage, which typically involves signing a mortgage contract. We recommend reading through the contract thoroughly to ensure you are happy with the offer before signing it.
Here are some key points to check:
- Loan amount. This is the total amount of money the lender is willing to lend you to purchase the property. It’s typically based on your income, affordability, and the property’s value.
- Interest rate. This is the percentage of the loan amount you’ll pay in interest each year. It’s a crucial factor in determining the overall cost of the mortgage.
- Mortgage term. This is the length of time you have to repay the loan, typically expressed in years. Common terms are 25, 30, and 40 years.
- Fixed-rate or Tracker Period. This is the initial period that your deal will last before you’ll need to remortgage or be moved onto your lender’s Standard Variable Rate. Common introductory periods are 2, 3, 4 or 10 years.
- Early Repayment Charge. This is the fee you’ll potentially need to pay if you decide to end your mortgage before your introductory period is over. It’s usually expressed as a percentage of your remaining loan and often decreases over time.
How Do I Get a Mortgage Offer?
After you receive your Mortgage in Principle, your broker will then help you move on to the official application. Your lender may require additional information so they can do a thorough check of your affordability and creditworthiness. Additionally, the lender will usually instruct a valuation of the property at this point, as the asset’s value is a crucial part of their lending calculation. The time it takes from applying for a mortgage to receiving a mortgage offer can vary depending on the lender, but typically, you can expect to receive your offer within 2-4 weeks.
How Long Does a Mortgage Offer Last?
How long your mortgage offer will be valid for will again depend on your lender, but this will usually be between 3-6 months. This means you have a limited time to complete the purchase process before the offer expires. In some cases, you may be able to extend it, but this isn’t guaranteed and may require some additional information. One of the best ways to reduce the risk of missing your mortgage deadline is to use a mortgage broker. An experienced mortgage broker will ensure there are no mistakes on your application that could delay the process. Here at Michael Usher Mortgage Services, we also employ a team of paraplanners who will liaise with your lender, estate agent, and solicitor to ensure the process goes as smoothly as possible.
Mortgage in Principle vs. Mortgage Offer
A mortgage Agreement in Principle (AIP) gives an estimate of how much you’ll be able to borrow providing you pass the lender’s full mortgage checks during a later application. It acts as an informal agreement that the lender will be happy to lend to you in theory, but it’s not legally binding for either party. An AIP can usually be obtained within a few days, and you can then use it to look for properties within your budget and to support any offers you may want to put forward. A seller may be more inclined to accept your offer if they can see you have received an AIP.
A mortgage offer comes next. This is a formal, legally binding commitment from the lender stating that they will provide you with a mortgage at the agreed-upon terms (providing nothing major changes with your circumstances or the lender’s criteria in the meantime). A mortgage offer will only be issued after the lender has completed your affordability check, credit check and home appraisal (valuation). It can take 2-4 weeks from application to receive your mortgage offer, but it is required to move into the conveyancing stage and to exchange contracts with the seller.
The Bottom Line
Although a Mortgage in Principle isn’t legally binding, it’s still a relatively simple and quick way of strengthening your position as a buyer. Having a Mortgage in Principle will give you and the seller confidence and allow you to put forward stronger offers whilst you’re waiting for your formal mortgage offer to come through. Once you receive and accept your mortgage offer, you’ll then have a legally binding commitment from the lender that allows you to progress the homebuying process into the later stages – including the exchange of contracts and completion. Our mortgage advisors are ready to help you get your Mortgage in Principle and a formal mortgage offer, so please book an appointment to get going.
At Michael Usher Mortgage Services, we’ve been helping our local community for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will
depend on your circumstances but will be agreed with you before
proceeding.
