Bennison Brown | Everything you need to know about an Agreement in…

Everything you need to know about an Agreement in Principle

What is an Agreement in Principle?

An Agreement in Principle (AIP), also known as a Decision in Principle or Mortgage in Principle, is an official statement from a mortgage lender. It states that, according to the basic information provided, the lender would lend a certain amount to the potential borrower.

What is it used for?

Agreements in Principle give confidence to sellers and estate agents that you can afford to purchase a house.

Do I need one?

It is not compulsory to obtain an AIP, but it may help you appear as a more attractive buyer if you have one.

How long does it last?

Decisions in Principle generally last between 30-90 days before expiring. If you need an AIP after the expiry date, you will have to apply for another one.

Will it affect my credit score?

Lenders will run a credit search when issuing agreements in principle. Most will do a hard search, where the search is visible to lenders on your credit report. Other lenders will do a soft search, which lenders will not be able to see on your report.

Too many credit searches in a short period of time will negatively affect your credit rating. While purchasing a house you are only likely to receive one search, so this is unlikely to be an issue

Does it guarantee my mortgage?

No, it is an initial approval based on limited information.

To receive a full mortgage offer, a lot more information is considered, including:

  • The valuation and acceptability of the property
  • Approval from an underwriter (who verifies that your documents match the information provided to them)

Does it guarantee the mortgage interest rate?

Unfortunately no. With very few exceptions, most lenders do not allow you to reserve a mortgage interest rate or ‘product’ until a full application is made.

In summary:

What an AIP does:

  • Give evidence that you can theoretically afford a home you want to buy
  • Give sellers confidence about your credit score
  • Tell you how much you can borrow while it is still valid

What an AIP does not do

  • Guarantee you can obtain a mortgage
  • Guarantee how much you can borrow after it expires

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