How do you know what you can afford when looking for a new house? Well, depending on where you are in your property search, you can use one of two agreements — a mortgage in principle (MIP) or an agreement in principle (AIP).
Confusingly, mortgage brokers and lenders sometimes use these terms interchangeably.
So, to make things clearer, here’s everything you need to know about MIPs and AIPs, including how long they last, whether they can be declined, and if they can be withdrawn.
What is a mortgage in principle?
A mortgage in principle is a certificate or written statement from a mortgage lender, like a bank or building society, that shows how much they’d be willing to let you borrow, in principle.
‘In principle’ basically means they make an estimate based on the information you’ve given them at the time. The agreement isn’t binding, and isn’t a commitment to offering you a mortgage of the same value later.
The decision is based on a few simple pieces of information:
- Your income
- A few broad estimates about what you spend each month
- The amount of money you have in savings
- The amount of money you want to use for a deposit
- The approximate cost of the property you’d like to buy
The lender won’t carry out any kind of credit check for this type of agreement.
It’s helpful to get a mortgage in principle early on in your house hunt, as it gives you a good idea of your budget. This means you won’t waste time looking at properties you can’t afford. It also shows sellers and estate agents you’re serious about buying a property, and can afford to do it.
How long does a mortgage in principle last?
While there isn’t a specific time limit, the answer you get depends on the information you give at the time. So if any of this changes, your mortgage in principle won’t be valid. This could make the existing agreement less useful. If this happens, you can use the new information you have to make another application.
It’s important to note that many brokers and lenders use the term ‘mortgage in principle’ to refer to an ‘agreement in principle’, which we’ll talk about later.
While MIPs usually only involve a soft credit check (which doesn’t leave a visible footprint on your credit report), some providers will run a hard credit check (which does leave a visible footprint on your credit report). Multiple hard credit checks can make it look like you’ve been declined for a loan or credit card several times in quick succession, which can affect your ability to get a mortgage later on.
Check with your lender or broker that you both mean the same thing by ‘mortgage in principle’, and that you’re not in danger of multiple hard credit checks if you want to update the information used to make a decision.
Can you be declined for a mortgage in principle?
Yes. You could be declined for a mortgage in principle if you don’t have a high enough income or deposit, or if they think you might fail the basic eligibility criteria for a mortgage.
What is an agreement in principle?
An agreement in principle is slightly different to a mortgage in principle because it shows how much a lender would be willing to lend you, in principle, for a specific property.
This agreement also isn’t binding in any way and doesn’t mean you’ll be able to get a mortgage of the same value later.
It does, however, give you a more accurate idea of whether you’ll be able to afford the property you’re interested in — and it gives the seller confidence that you’re serious about buying it.
It also gives you a more accurate idea of how much of a mortgage you might be able to secure, because it requires the same information and documents that you need for a full application.
You can get an AIP from a lender or a mortgage broker. They’ll need:
- More detailed information about your finances, such as:
- The exact details of your income
- Notes on your outgoings and any existing credit agreements
- Proof of ID, such as a passport or driving licence
- Proof of address for the last three years
- Bank statements
How long does an agreement in principle last?
An agreement in principle can be valid for 30-90 days. Different providers often have different limits, though, so it’s important to double-check yours to make sure it won’t run out sooner than you expect.
Again, if any of your circumstances change before the agreement runs out, you may want to make another application, if this will only involve running a soft credit check or if you don’t expect to have to do it too many times.
You can apply for another agreement in principle if yours runs out. But you also don’t want to apply for too many AIPs in quick succession.
Can you be declined for an agreement in principle?
Yes, you could be declined if the lender doesn’t think you’ll meet the basic eligibility criteria for a mortgage, or if your income or deposit isn’t high enough.
Can a mortgage in principle or agreement in principle be withdrawn?
It’s unlikely that the lender will withdraw either of these agreements. But as we’ve mentioned before, if your circumstances change significantly at any point, they may no longer be accurate.
You may then find that when you make the full mortgage application, the amount you’re offered is different, or you’re declined altogether.
The main reasons for a lender to decline a mortgage include:
- Changing jobs
- A significant change in income or outgoings
- Taking out a new form of credit
- Missed payments and arrears that the AIP didn’t pick up
- Financial associations with credit problems
- Information held at another Credit Reference Agency
Read more: What to do if your mortgage is declined.
Can I get a mortgage in principle from Habito?
Yes, you can! It’s quick, easy, and completely free.
We’ll just ask about your income, your outgoings, how much you’ve got saved, your deposit, and a rough estimate of the cost of the property you’d like to buy.
Add those details, hit submit, and that’s it. We’ll get to work finding you a mortgage in principle.
Get your MIP from Habito here.