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Buying a home can be intimidating, especially for first time buyers new to the process. There is a lot that can go wrong, including problems found during the survey, your offer being rejected or your mortgage application being refused.
While there is nothing you can do about problems found during the survey, obtaining a mortgage in principle can help to ensure your offer is accepted and your mortgage application is approved.
This forces the question, 'do you need to get a mortgage in principle before making an offer?'. In this article, we are going to answer this question in detail because it often causes confusion, with some people saying you do and some saying you don’t.
The short answer is no, you don’t need a mortgage in principle to make an offer, but this doesn’t tell the whole story. While a mortgage in principle is not required, the seller is more likely to take your offer seriously if you can prove funding is available.
Think about it from the seller's perspective. By only accepting offers backed by a mortgage in principle, they are greatly reducing the risk that the sale will be delayed by funding issues. So, do you need to get a mortgage in principle? No, it’s not a legal requirement, but most estate agents, mortgage brokers, lenders and conveyancers recommend obtaining one before making an offer.
A mortgage in principle (MiP), sometimes known as an agreement in principle (AiP), is essentially an indication from a mortgage provider that they will provide you with a mortgage for a specified amount. It is important to understand that a mortgage in principle is NOT a guarantee of a loan. The lender is under no obligation to provide you with funding, even if they have supplied you with a mortgage in principle.
This is because lenders do not typically carry out a full credit check when applying for a MiP. The amount they are prepared to lend is based on the information you provide during the application.
This information is only verified once a full mortgage is applied for. If your circumstances have changed since applying, or you were not forthcoming about issues on your credit file, such as CCJs or late payment notices, your mortgage may still be declined.
A mortgage in principle is valid for between 30 and 90 days. You should check how long the agreement lasts during the application process. Once the agreement has elapsed, it is no longer valid and your offer may still be refused.
So, it is always advisable to obtain as long an agreement as possible. This will save you the trouble of reapplying later on. However, you should never be charged for obtaining a MiP. So, if your agreement does expire, it’s simply a case of applying for a new one.
Obtaining a mortgage in principle is useful for the following reasons:
Makes you a more credible buyer
Having proof of funding makes you a more credible buyer. This will make it much more likely that your offer is accepted. Some estate agents will only forward an offer if it is backed by a mortgage in principle, for example.
Reduces the risk of delays
Not having an agreement in principle can cause unnecessary delays if you are unable to secure funding. In a worst-case scenario, this could result in you losing your first choice home.
Gives you added peace of mind
If you are a first-time buyer and have never applied for a mortgage before, you may be worried that a lender will not take you seriously. An agreement in principle can put your mind at rest that you will be able to secure the level of funding required.
Applying for a mortgage in principle is easy. In most cases, the process can be completed in less than 10 minutes. You can either apply directly to a lender or through a mortgage broker like us.
The benefits of applying through a broker are that we know which lenders are likely to accept your application. This is important if you have any adverse credit history or you are a contractor/self-employed individual that may be seen as high risk by a high-street lender.
When applying for a MiP, you will need to provide documents to prove your identity. You will also need information about your salary, credit rating and current debts, including credit card debts and the size of deposit you have.
You will not need to provide bank statements or payslips at this stage. You simply need to provide the information. However, you should be upfront about any adverse credit history you have on file because this may impact your ability to secure a loan later on.
If you are an early stage house hunter and would like to know how much you can comfortably afford to borrow, without having to apply for a mortgage in principle, check out our affordability calculator.Affordability Calculator
This is an important question because different lenders reference your credit report in different ways. Most lenders only carry out a soft check on your credit report for a mortgage in principle application.
Soft searches are referenced on your credit file as an enquiry only and will not impact your ability to get a loan. Hard searches, on the other hand, are recorded as an application for credit and may adversely impact your credit score.
So, you should always ask what type of credit check will be carried out when applying for a mortgage in principle. We always recommend avoiding companies that carry out hard checks unless there are no other mortgage providers available.
If you are looking to secure a mortgage, the experts at WIS Mortgages are here to help. We specialise in finding mortgages for home buyers that high-street lenders often refuse.
Our specialist team will carefully evaluate your circumstances before pairing you with a suitable lender. We can then help you apply for a mortgage in principle to prove to any buyer that you have funding available.
Get in touch today by completing the contact form here. Alternatively, give us a call on 020 3011 1986 for a friendly chat. We are happy to fund all types of borrowers, including company directors, the self-employed, ex-pats and contractors.Contact Us
As a mortgage is secured against your home/property, it may be repossessed if you do not keep up with the mortgage repayments.