When you are considering getting a mortgage agreement in principle, there are some basic facts you need to know. We will cover a couple of them. However, we highly recommend you reach out to an independent professional mortgage broker.
An independent mortgage broker is there to help you navigate different situations when buying a home. The advice you will receive from a broker in your house buying process can save you a lot of money.
To fully understand the full application process involved when buying your first house, you will need to know the definition of agreement in principle.
What is an Agreement In Principle (AIP)?
This is also known as a mortgage in agreement, a decision in principle or approval in principle. It’s a written document from a mortgage lender reassuring a home seller and the buyer of their willingness to lend the required amount of money. It’s an express indication that the buyer has the financial capacity to pay for the property.
Before the Mortage Agreement in Principle is issued, the broker must have to double-check all the facts you intend to present for accuracy.
What documents do I need for an agreement in principle? Your payslips, bank statements, credit report, photo ID and proof of address must be provided.
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Benefits of a Mortgage in Principle
Beyond helping you to save time during the buying process of a new property, here are other reasons why you should get a mortgage agreement in principle:
- Having a decision in principle gives you the confidence that you can borrow money for the purchase of your desired property
- It makes the real estate agent and house seller believe that your offer is real and credible
- A mortgage agreement in principle will also give you a clear idea of what price range you should be looking at when shopping for a loan; what deposit you need; your interest rates; your monthly payments; what you can afford to borrow; and what your limits are.
- Your approval in principle gives you a stronger negotiating power. Every experienced real estate agent near you will tell you that there’s no easier way to increase your confidence than having your agreement in principle.
What Are the Factors that Can Make Your Mortgage Application Turned Down?
One of the factors that can make your mortgage lender refuse to give you the required agreement in principle is when their underwriters discover that the information you submitted is false.
Other reasons for declining mortgage applications are poor credit history, the presence of too many credit applications, poor earnings, high debts, etc.
To avoid having a misguided sense of security, please, understand that not all mortgage agreement in principles are the same. Always read the terms to understand the extent of the validation as it regards the Lender’s Underwriting Policy. Oftentimes, the credit search is always included.
What Are the Key Facts You Should Know About a Mortgage Agreement in Principle?
Here are the top 5 facts you need to know about the mortgage decision in principle process:
1. The faster you obtain your Mortgage Agreement in Principle, the better
You don’t have to wait until you have a specific property in mind before you request a mortgage decision in principle from a mortgage lender. The most basic decision you have to make in advance is how much you are willing to spend.
Other decisions you have to also make in advance before approaching a mortgage lender are how much you have to deposit and if what they will give you will be enough for the property you want to buy. If the underwriter confirms that you are within the price bracket, you are getting it, asap.
2. Avoid taking mortgage advice from an estate agent
Taking mortgage advice from an estate agent can make them offer only the kind of advice that will favour them. They may try to convince you but don’t yield to that. Reach out to a professional mortgage broker for the best advice on getting an agreement in principle.
Why do we advocate against following the recommendations of an estate agent when getting a lender? It’s because they will always have conflicts of interest. When they know your borrowing potential, they can through the backdoor influence the increment of the property price.
3. How long does a Mortgage Decision In Principle Last? Can it be renewed?
The validity period of a mortgage agreement in principle is normally 30 days. However, it’s not difficult to renew it if you are unable to get a good property of your choice. Do not be in a haste to run another one. Yes, the house seller and estate agent will use all manner of marketing strategies for selling a property to get to buy immediately, but don’t yield to pressure.
Understand the impact running a mortgage agreement in principle will have on your credit report before getting one.
4. To increase the estate agency’s perception of you, get your mortgage agreement in principle before visiting their office
Tyre kickers are everywhere. They can hold a conversation with you for hours, days and weeks, yet they won’t buy. If you finally agree on their price, they will disappear into thin air. We’ve all seen them in our various businesses.
Quite a good number of tyre kickers are constantly pricing properties they can’t afford. The easiest way an estate agency identifies them is that they don’t usually come up with a decision in principle.
To be seen as a definite buyer, approach the estate agency with your mortgage agreement in principle. Until you present that and it’s verified, the estate agent may not want to take the property off the market.
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5. Knowing the ins and out’s of your credit report will put you at an advantage
When you know your credit profile, it will help you narrow your search. You can easily get your online credit report from either Experian or Equifax. Armed with this information, you can easily make an appropriate mortgage lender selection.
A Mortgage Agreement in Principle gives an idea of budget, so you can focus your house or flat search on properties you can afford. This can save time and avoids the disappointment of getting your heart set on a property, only to find it’s not in your price range. Take a look at this guide on how to get a commercial real estate loan.