A mortgage in principle, or a ‘decision in principle’, is simply a document outlining a mortgage promise from a lender. The mortgage in principle is not a guaranteed mortgage offer, as a formal mortgage offer will follow a mortgage survey and a full assessment of your profile.
A mortgage in principle is usually obtained following a basic assessment of your financial circumstances and is usually a decision outlining the amount of money a lender is prepared to lend to you.
This can usually be provided as a hard copy or be sent via email.
Although this isn’t a formal mortgage offer, an agreement in principle is still a very important document. It’s highly advised to get a decision in principle before you start your mortgage search and we’ll outline why below.
Many people begin their property searches without actually knowing what their budget is. This of course isn’t advised as you could waste a lot of your own time, plus the time of estate agents and property sellers. A decision in principle will provide you with a maximum amount a lender is prepared to lend to you.
Once you have an agreement in principle, you’ll have an accurate budget to work towards. You can then begin your search with confidence and only view the houses within your budget. You can also register with local estate agents and provide them with the exact property criteria you’d like to know about. You can also include your property budget in this, so you’ll only be notified about properties up to a certain range. Again, this gives you a lot more direction in the search for your new home.
By having an agreement in principle, it also provides you with some buying power. This is because when you do make an offer on a property, estate agents will usually ask you if you have an agreement in principle. By having this document to hand, it can give estate agents a lot of confidence in you as a buyer.
This can be so important in clinching a popular property, especially when multiple offers have been put forward. Furthermore, if you have already have the agreement in principle to hand, you’ll be in a much better position than buyers who are yet to get this document. Again, estate agents will have more confidence in you as a buyer, as you also understand your budget as a buyer. The last thing an estate agent will want to do, is to take an offer from a buyer that doesn’t yet even know their budget.
If multiple offers are made on a single property, then property sellers are well within their right to ask about the circumstances of each buyer. If you’re in a better position to buy because you already have a mortgage in principle in comparison to another buyer who doesn’t, the seller will of course be more inclined to accept your offer, as it’s simply more credible.
A mortgage in principle is perhaps the first piece of the jigsaw towards your property purchase. It’s also the start of your mortgage journey. Once you do have an offer accepted on a property you’ll more than likely want to tie the deal up as fast as possible to avoid any delays causing the sale to fall through. If you’ve already got your agreement in principle, it can save heaps of time as a mortgage survey can be booked almost instantly.
By spending some time preparing for your property purchase prior, can save you a lot of wasted time and surrounding pitfalls. As the lender has already provided you with an agreement in principle, it allows brokers to complete your mortgage application a lot faster, as in theory, it’s already begun.
The only steps remaining would be to arrange the mortgage survey and gain a formal mortgage offer. From then on, it’s simply left with the solicitors to complete the purchase from a legal standpoint.
Solicitors will also request the funds from your mortgage lender so that they can complete the transaction by transferring the funds to the seller’s solicitors. This post was written by expert mortgage advisor who frequently write about bad credit mortgages.