When you’re buying a property with a mortgage, you will usually secure a mortgage in principle from your chosen lender at the beginning of the property-hunting process. This shows estate agents that you are serious about buying a property, and in fact, many agencies will ask to see your mortgage in principle paperwork before they offer a property showing.
In this article, we will look closely at what a mortgage in principle is and answer some common questions.
What is a Mortgage in Principle?
A mortgage, in principle, is provided by a bank, lender, or building society when a customer is looking to apply for a mortgage. It’s a written document that indicates how much that person may be able to borrow. The document is used to show that you’re a serious buyer when you’re looking to buy a property, and you may be asked to show it to vendors or estate agents. This document, also called a decision in principle or agreement in principle, shows that – in theory – you will be able to get a mortgage for the amount shown.
How Long Does a Mortgage in Principle Last?
The duration that a mortgage, in principle, is valid for depends on the lender. Typically it will be for 30-90 days. It’s usually quite simple, though, to have the document updated by the lender if it expires while you are hunting for the right property.
How Can I Get a Mortgage in Principle?
The first step is to research potential lenders whose lending criteria you fit or to use a broker who can do this for you. As an example, brokers such as 94 Mortgages can help you to secure this vital agreement. Mortgage brokers can provide mortgages for people with all kinds of credit ratings, including bad credit mortgages and business owner mortgages. Again, a decision in principle for these specialist types of mortgages will be offered by the lender.
What Happens After a Mortgage in Principle?
Once you have your decision in the principle document, you can look for a property. Once you have found the property that you want to buy and have had your offer accepted, you can move ahead to fully apply for the mortgage you have already discussed with your lender. At this point, you will have a full credit check and complete the full application. It is important to note that even though you will have received your decision in principle, this doesn’t guarantee that you will then be accepted for the mortgage product you were originally interested in. Factors that can affect this include a change in your own circumstances or a change in market conditions which has led to certain mortgage products being withdrawn. If this happens, the lender may be able to offer you the same mortgage but via another product in their lending range at the time.
Do You Need a Mortgage in Principle to Apply for a Mortgage?
You do not need the decision in principle to apply for the mortgage, and you can apply for a mortgage straight away if this is more appropriate for your circumstances. The application process will include a full credit check. If you choose to use a broker, then the broker will make the process as quick and easy as possible by acting as a go-between between you and the lender with any queries or information requests.
Will Applying for a Mortgage in Principle Affect My Credit Rating?
A mortgage, in principle, requires a hard credit check which leaves a footprint or record on your credit file (unlike a soft credit check which doesn’t.) This is because a mortgage is a significant financial commitment and a lender needs to understand your creditworthiness before it can make an offer to lend to you. It’s important not to have too many hard credit checks registered on your credit report within a short period of time because it can suggest that you are experiencing financial difficulties. For example, if you have taken out multiple forms of credit in a short timeframe. By using a broker to find the most likely lender before making an application, you can reduce the number of hard credit checks made on your credit record to get the right Decision in Principle document and offer.
Can You Get More than One Mortgage in Principle?
Yes, in theory, you can get more than one mortgage in principle, but it’s generally not a good idea to do so because each offer will leave a hard credit check on your credit score, and this could negatively impact your creditworthiness. It can be better to choose the right lender in the first place or use a broker who will find the best possible lender and deal with your needs before you apply for your decision in principle.
So, there you have it – everything you need to know about mortgages in principle!
