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People say house-buying is complicated. That’s nonsense; first, decide whether you need a mortgage in principle, also known as a mortgage promise or an agreement in principle (AIP, if you will). Maybe a decision in principle (DIP) is for you? Or a lending certificate. OK, that does sound complicated.
The truth is, they’re all pretty much the same thing, and deciding whether you need one is easier than it’s ever been. Find out why below.
Let’s call it an AIP. An agreement in principle is a statement from a mortgage lender saying that, in principle, based on information such as your income and employment status, they’d be willing to lend you a certain amount of money.
It’s NOT (the Home Owner’s Alliance are keen to warn), a guarantee that you’ll get a mortgage, or a guarantee of how much it will be.
A formal mortgage application (usually made once you’ve found a house and negotiated a contract) will look at more information more closely, which may result in a different decision being made. However, an AIP does have its uses…
David Hollingworth of the Home Owners Alliance is cynical about the benefits of AIPs, saying estate agents are bound to like them because they show you’re able to secure a mortgage.
Phil Spencer in How to Buy Your First Home says the same, but claims that ‘you need estate agents more than they need you’, and that getting them onside is no bad thing. Phil’s advice for building a strong relationship with your agent includes meeting them in person, being seen to take notes (to come across as a “well-prepared, decisive buyer”); and having a mortgage in principle.
The Rough Guide to Property, published in 2016, is equally sure that an AIP is a must, saying they show you’re serious, and therefore reduce your chances of being gazumped.
AIPs usually last around 30-60 days, it makes sense getting one early in the process once you have the deposit amount saved and are ready to start viewing properties and making offers.
However AIPs do lapse, so if they’re done too early, there’s no guarantee you will be provided the same response when going through the full mortgage application, additionally your credit history can end up showing more than one check if done too early which may also count against you.
The common argument you’ll hear against getting an AIP is that they involve a credit check, and multiple credit checks can harm your credit score, reducing your chances of getting a mortgage.
Home Owner’s Alliance suggest that unless you want a particularly high mortgage, or have credit worries, a conversation with a mortgage broker to see what they think might do the job just as well.
However, search the internet for ‘mortgage in principle’ and you’ll find mortgage lenders are changing tact; many are now offering an AIP that won’t affect your credit score, and boast that they can be applied for online, with an instant decision and no obligation.
This being the case - and make sure you double check - we have to agree with Phil; going into house-buying with an AIP is a good way to increase your confidence and show sellers you mean business!
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