If you’re currently looking to buy a new property you may have heard the term “mortgage in principle”. It is otherwise known as an “agreement in principle”. It is often seen as a first stop in the process of securing a mortgage. A mortgage in principle is a document written from lenders. It includes an estimate of how much they will lend an individual for a property. In this article we’ll answer some frequently asked questions about mortgages in principle.
Is a mortgage in principle the same as a mortgage offer?
In short, no. To receive a mortgage offer, a significantly more detailed assessment of your financial situation is needed. A mortgage offer is required to legally purchase a property and uses the property to be purchased as financial security.
A mortgage in principle is valid for a specific time period, usually between 30 and 90 days. Should your property offer not be accepted within this time, you may need to acquire a new mortgage in principle.
Do you require a mortgage in principle to put an offer in on a property?
A mortgage in principle is certainly not compulsory for prospective property purchasers. However it does help to show the sellers and their estate agents that you are serious about the property. It will also inform them that you are able to afford the property. This can be particularly useful in a competitive market. Sellers will be more sure that you’ll not pull out of an agreed deal due to affordability factors.
As well as not requiring a mortgage in principle to offer on a property, the converse is also true. You do not have to have found a property, in order to obtain a mortgage in principle. We’ll discuss further benefits of a mortgage in principle later in this article.
Can you have more than one mortgage in principle from multiple lenders?
Yes. If you don’t receive a mortgage in principle from one lender for your required amount, you can try another lender. This should not be undertaken lightly, though. When a lender determines how much they could lend an individual, they may carry out a credit check. The credit check can either be ‘hard’ or ‘soft’. A hard check is visible on your credit file, whilst a soft check is not. It’s not a problem to have a hard check on file. However multiple hard checks over a short time could impact your credit rating. So, before you engage with multiple lenders, check if it is a hard or soft check they will carry out.
It is also worth remembering that a mortgage in principle is not a guarantee of a specific mortgage rate. If the mortgage rate changes significantly, it may be necessary to obtain a new mortgage in principle.
Why can it benefit you to have a mortgage in principle?
A mortgage in principle gives an indication of the budget you may have for a property. This may be particularly useful for first-time buyers who don’t have equity from an existing property to support an offer.
The estate agents who are selling a property may look at mortgages in principle to ascertain serious offers. This is particularly the case if more than one offer is tabled. Having a mortgage in principle also shows that the initial steps have been taken to secure a mortgage. It is in no way a guarantee that a mortgage will be given, however it is a positive step.
If an application for a mortgage is rejected by a lender, for example due to affordability indicators, this will remain on your credit file. Having a mortgage in principle reduces, the risk of a mortgage application rejection. This is due to the fact you’re less likely to apply for a mortgage formally that is outside your budget. A mortgage in principle is a good indicator that affordability criteria have been met for that amount.
Why might a mortgage in principle be rejected?
There are a number of reasons why a mortgage in principle application may be rejected. This may include your deposit being too small, having inadequate income or a poor credit rating. If you change your job too often, this can flag you up as having the potential for poor financial security. This may result in an application rejection. Formal mortgage application refusals over the previous few years may also be detrimental.
Where can you get a mortgage in principle, and what information is needed?
A mortgage in principle document can be obtained directly from a lender. Mortgage brokers, e.g. Bell Mortgage Solutions, have the benefit of access to more lenders, and a wider range of mortgages. We are able to give you the best advice and options for your financial needs and circumstances.
In order to obtain a mortgage in principle, certain information will be required by the mortgage lenders. This varies between lenders, but may include personal details, income, deposit amount and monthly expenses, including credit card payments. At the ‘mortgage in principle’ stage, no supporting documents are required, but they will be to secure a formal offer.
How can Bell Mortgage Solutions help you?
Whether you’re just starting your property search or have already found your dream home, Bell Mortgage Solutions can help you. We’ll discuss your financial circumstances with you to determine your needs. Our expertise will help you navigate the market, identifying suitable lenders with whom you’re likely to meet eligibility criteria.
Contact us now to discuss obtaining a mortgage in principle.
Please note: Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained within was correct at the time of publication but is subject to change.
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