Agreement in Principle
- Independent Mortgage Advice from an award-winning broker
- No obligation consultations either face-to-face, online or over the phone
- We'll search thousands of mortgages from the whole of the market so you don't have to
What's On This Page?
Get In Touch
Home » First Time Buyers » Agreement in Principle
Agreement in Principle (Part 1)
Lewis Shaw explains how an Agreement in Principle works. Episode one of two, recorded in December 2024.
What is an Agreement in Principle?
An Agreement in Principle is a document produced by a mortgage lender that indicates how much they might be willing to lend you, based on some initial checks. It goes by various names: An Agreement in Principle (AIP), Decision in Principle (DIP), Mortgage in Principle (MIP) or Mortgage Promise. However, they all mean and refer to the same thing.
When we apply for an Agreement in Principle, lenders undertake affordability and ID checks, and sometimes money laundering checks, to get a good idea of whether they are comfortable with you as a potential customer. An Agreement in Principle doesn’t constitute a mortgage offer. Still, it gives you the certainty that assuming
What should I do if my estate agent is asking to see my Agreement in Principle? How do I get one ?
An estate agent might ask to see an Agreement in Principle because they have to be comfortable recommending your offer to the vendor if you make one. One way estate agents do that is to see the Agreement in Principle—it’s evidence that you can get the mortgage to buy that property.
There are two ways to get your Agreement in Principle. You can go online and choose a lender, although they aren’t particularly accurate, in all honesty. However, the most common route is via a mortgage broker.
We’d go through a questionnaire to gather all the necessary information and request your documentation to ensure that all the information we’re putting in for the Agreement in Principle is accurate. If the information we put in isn’t correct, the Agreement in Principle figures won’t be either. This is one of the key areas many buyers get wrong when trying to get an Agreement in Principle themselves. We’d then assess how much deposit you have and how long the mortgage term might need to be and check all the details to get that Agreement in Principle.
If it passes, you receive a PDF copy directly into your inbox, and away you go to start viewing properties.
Do I have to have an Agreement in Principle through the estate agent I’m looking to purchase through?
No, you don’t need to get an Agreement in Principle through the estate agent. Sometimes, estate agents try to force buyers into getting an Agreement in Principle with their in-house mortgage advisers. You absolutely don’t need to do that. You’re under no obligation to choose them.
It is a bad idea to do that because if you disclose all your information to an in-house mortgage advisor for an Agreement in Principle, they know exactly what your budget is. This could affect your negotiation tactics when you want to make an offer because now they know how much you can borrow and afford. If you’re trying to go below your asking price, they already know that you can afford more than that.
How reliable is an Agreement in Principle? How long does an Agreement in Principle last?
An Agreement in Principle is an excellent indication. Still, it’s only as reliable as the information that’s gone into it. That’s why we always request your documentation and credit profile to ensure the figures are exact to the penny. That will make the Agreement in Principle reliable.
Generally, they are valid for 30 to 90 days. Of course, this varies from lender to lender. While Agreements in Principle are helpful and allow you to view properties with confidence, they do not guarantee mortgage approval.
Before you can get a mortgage, you must undertake surveys and go through legal processes. But our Agreements in Principle are reliable as long as the information that’s gone into them is accurate, which is why we ask for all the documentation upfront.
Can I make an offer with an Agreement in Principle?
Yes, absolutely. We would encourage anyone looking to buy a property, whether it’s the first time or the tenth time, to always get an Agreement in Principle first. It’s just better to iron out any kinks at that point than to find a home, fall in love with it, have your offer accepted, and then fall at the first hurdle.
Getting an accurate Agreement in Principle means you can make an offer and show the estate agent that you’re a serious buyer. When they recommend to the vendor which buyer should win the negotiation to buy the property, your Agreement in Principle will help.
Does an Agreement in Principle mean you will get a mortgage?
No, it doesn’t mean you’ll definitely get a mortgage. However, assuming the information we’ve used to get your Agreement in Principle is correct, you should, but it’s not guaranteed. There are other factors at play.
Every single mortgage application has to go through underwriting, and the lender is also going to carry out a mortgage valuation on the property you’re buying. If there’s something wrong with the property, it can cause problems. For example, the conveyancers may uncover something within the legal work that means the lenders won’t lend against that particular property, or the valuation and survey may find issues with the property, such as damp or subsidence.
While an Agreement in Principle is as good as it gets and is a necessary step towards getting a mortgage, it doesn’t mean that you’ll definitely get one.
Will I need a credit check? Does an Agreement in Principle or a Decision in Principle affect credit score?
An Agreement in Principle ordinarily doesn’t affect your credit score, but in some circumstances, it can, depending on the lender. Lenders perform either a soft or a hard credit check for an Agreement in Principle. Soft credit checks don’t affect your credit score. You would see them as a stamp on your credit profile, but another credit institution wouldn’t see them.
However, hard credit checks do leave a footprint on your credit profile. If you had a hard credit check with a lender and went to another lender that did a soft check, they would see that another mortgage lender had carried out a hard check. These can affect your credit score by knocking off a few points, but most of the time, they shouldn’t have a significant impact.
The important thing here is that it’s an essential part of the process. Whether you have good credit or bad credit, it needs to be completed. The right thing is to do it upfront as soon as possible before looking for a property. That way, if there are any issues, we can iron them out early.
How do I apply for an Agreement in Principle and how long does it take?
To apply for an Agreement in Principle, you’d book an appointment. We would ask you to fill out a questionnaire and upload the documentation we need—typically pay slips and bank statements. We can then assess the type of mortgage and lenders that will be right for your circumstances.
We would then look to get that Agreement in Principle with a particular lender and email it to you once it’s approved. With some lenders, it’s an instant yes or no, while other lenders may take a bit more time or require further information.
As a rule of thumb, if we have the documentation and the completed questionnaire, we’ll ordinarily turn in the Agreement in Principle around within a few hours.
How can a mortgage broker help? Is there anything else we need to know before we come back with part two?
A mortgage broker helps by making sure that the information for the Agreement in Principle is accurate. Often, people don’t realise the level of accuracy that mortgage lenders require. For example, if someone says they earn £40,000 per year but they really earn £39,673.24, that is the level of accuracy a mortgage lender wants. This becomes even more important if you have overtime, bonus commission, or any type of fluctuating income.
A good mortgage broker ensures the information is accurate and we’re approaching the right lender. Every lender has different systems, processes, lending criteria, and affordability calculations, and they treat income in various ways. So, getting it correct at the start means there shouldn’t be any surprises along the way.
It’s about matching you to the right lender for your Agreement in Principle – and confirming you can get a mortgage to buy the home you want.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
Speak To an Expert
Agreement in Principle (Part 2)
We continue the conversation on an Agreement in Principle with Lewis Shaw. Episode two of two, recorded in December 2024.
When should I get an Agreement in Principle?
The right time to get an Agreement in Principle is when you’re actively looking to buy a home. You’ve saved your deposit, decided to take the plunge, and started looking for a property to buy. Before you start getting carried away on Rightmove and booking viewings, you must first get your Agreement in Principle.Please speak to a mortgage broker before you even start booking viewings. Without your Agreement in Principle, you may be disappointed. So, getting an agreement in Principle is the first thing you should do when you’re considering buying a property.
What information do I need to get an Agreement in Principle?
Essentially, we need to know a little bit about you and get some documentation from you for that Agreement in Principle. Specifically, we need your full name and date of birth, your nationality, your marital status, and your household makeup. For example, are you a single person with no children? Are you a couple with two children?We’ll also need a three-year address history and details about your income. Are you employed or self-employed? How much do you earn? When did you start, and who do you work for? We also need to know about your credit history, current debts, and credit commitments. We look at your credit score and ensure it’s all as it should be.
If there are any hiccups in your credit history, we need to be aware of those. We also look at what you’re looking to achieve. How much do you need to borrow? What type of property are you looking to buy, and how much deposit do you have?
It’s about taking a holistic view of the person and their situation. Then, we look to get an Agreement in Principle at that point.
How is affordability calculated for an Agreement in Principle?
When calculating affordability, each lender will have their own calculations, which can vary widely. What happens is that the lender makes an assumption about how much you might spend when you’ve moved into the home on running costs and household bills. They also take into account your earnings and credit commitments.If you have any dependent adults or children in the home, they will use that in their affordability calculator to understand how much they think you should be able to borrow. That’s then stress-tested, making sure that if interest rates rise in the future, you’ll still be able to make those mortgage payments.
So based on income, outgoings, how many dependents you have and the deposit, their calculations give a maximum borrowing amount.
Is an Agreement in Principle guaranteed?
An Agreement in Principle isn’t guaranteed. Most Agreement in Principle documents will state, ‘This is not a guarantee of a mortgage offer.’ Other factors play into getting a mortgage, and these might prevent that particular lender from offering you a mortgage in the future. They’re not guaranteed. The details can change, and of course, interest rates change constantly.However, an Agreement in Principle tells you how much you can potentially borrow and that you’ve passed credit scoring. As long as all the information is correct, it should be fine. But it’s always subject to valuation, and the legal status of the property is OK.
It’s always best to be upfront and open with your broker because if there’s something you’re not telling us, 99 times out of 100, either the mortgage lender or us will find it at some point, so honesty is always the best policy.
Can my mortgage be declined after an Agreement in Principle?
Yes, it could be. If you’ve not been honest and truthful, the mortgage lender can decline the application after approving your Agreement in Principle.The reason might be that something has cropped up on your credit profile you didn’t disclose, or perhaps you’ve taken out some new debts and can’t afford as much as you thought. You could have changed jobs, and that particular lender doesn’t accept new employment.
A mortgage can be declined after an Agreement in Principle, but it doesn’t happen often. If it does, it’s usually down to something that should have been mentioned initially. That’s why honesty with your broker is always essential.
Can I get an Agreement in Principle if I’m a First Time Buyer?
Absolutely. We encourage everyone to get an Agreement in Principle, particularly First Time Buyers. That will guide you on your budget. There’s no point looking at properties that you can’t afford because you wouldn’t be able to get the borrowing.Equally, perhaps you can borrow much more than you assumed and buy a nicer house or in a better area. It’s vital for First Time Buyers to get an Agreement in Principle to understand how much they can borrow and what that might look like as a monthly cost. It also helps you to understand the process of buying a home and feel confident rather than confused.
When you’re doing it for the first time, it can be pretty daunting. It’s a big decision. You don’t want to fall in love with a home, get an offer accepted and then be unable to proceed because you didn’t go through the right process at the start.
How will bad credit affect an Agreement in Principle?
Depending on the type of bad credit, we may need to use an adverse or specialist credit lender. If you have bad credit and you want to get an Agreement in Principle, you don’t need to worry. However, it means we need to be more selective about the lenders we approach. Lenders understand that life isn’t always perfect. Things happen, and things can go wrong, and they can take that into account.The worst thing you can do is bury your head in the sand. Speak to a broker, as we can guide you through it – don’t sit there and worry. We should always be able to get you an Agreement in Principle because even if you’ve got bad credit, it doesn’t necessarily mean it’s a no. It might mean you need to wait a while, but almost everyone can get a mortgage in the end.
Is it harder to get an Agreement in Principle if I’m self-employed?
When you’re self-employed, it can feel daunting because mortgage lenders treat your income differently, and they vary in how they look at self-employed income.It can be a little bit more complex to get an Agreement in Principle when you’re self-employed, but it’s not something to be fearful of. There may just be more documentation involved to make sure that the Agreement in Principle is accurate.
It shouldn’t put you off. Just speak to a good broker who’s used to dealing with self-employed people, and they’ll be able to get you an Agreement in Principle.
I’ve been declined in Agreement in Principle. What can I do?
Don’t panic. We see this often: people have approached their own bank or building society and been declined for all manner of reasons. First, it’s important to understand the reason for the decline. Second, talk to a broker and be upfront and honest with them.It can be as simple as a credit blip, or you’ve not quite met the credit score for that particular lender. A broker will work to understand your circumstances in detail, enabling us to get you an Agreement in Principle approved.
What are the benefits of getting an Agreement in Principle with a mortgage broker?
Firstly, it will be accurate because we’ll work with the information you’ve provided and make sure that every detail is absolutely spot on. Secondly, we’ve got access to many different lenders, which means that we can match you to the right one for your circumstances.Thirdly, we can work much faster than your bank or building society. As long as the documentation and information you’ve provided are accurate, the Agreement in Principle should be much more reliable. So, for a fast and reliable Agreement in Principle, ideally, you should get one with a mortgage broker.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.