Whether it’s a mortgage in principle, decision in principle or an agreement in principle, for those who don’t already know, you’ll be relieved to know these are all the same thing. These are not three different stages you need to complete – just one! Different banks, brokers, developers and estate agents will all use the terms interchangeably, but they are all referring to the same thing.
In this blog we’ll look to answer the following questions:
- What is a Mortgage in Principle?
- Where can I get a Mortgage in Principle?
- When do I need a Mortgage in Principle?
By definition, a mortgage in principle is an indication from a mortgage lender (a bank or building society) of the amount they will lend to you. This does not constitute a promise and is subject to full underwriting, verifying your ID, income, expenditure and credit history once a full mortgage application is submitted. In order to issue a mortgage in principle, the specific lender will run a calculation based on your income and committed expenditure. They will also run a credit search to ensure you meet their criteria. If accepted/approved, the lender will issue a mortgage in principle document stating the maximum amount you can borrow or that the amount applied for is acceptable. The mortgage in principle is only a reflection of what that specific bank or building society will lend to you. Depending on how your circumstances fit the specific lenders criteria, this can be vastly different between lenders.
A mortgage in principle can be done directly through a potential mortgage lender or it can be done through a broker. For the same reasons you use a broker for the full application, it’s worth using a broker for the mortgage in principle. A broker should be able to get a mortgage in principle back to you within a few hours once they have all the relevant information from you, providing there are no issues. A broker will match you to the lenders criteria that’s right for you. Whether that’s someone who will lend you the most, someone who will use the appropriate figures if you’re self-employed, someone who will accept any adverse credit you may have, etc. The mortgage in principle shouldn’t just be something you do quickly with any lender you can. With certain banks and building societies, they will perform a hard credit search when you apply for a mortgage in principle. You want to be avoiding this unless you’re certain that it’s the most suitable lender and you’ll be proceeding with them for the full mortgage application.
A conversation with a mortgage broker should be sufficient for you to find out how much you can borrow on a mortgage. This then allows you to know what purchase price you can afford as this is simply a sum of how much you can borrow plus what deposit you have. However, in certain circumstances, getting a mortgage in principle before going to look at properties can be appropriate. Some people feel greater security having one in hand and, if this is you, we can sort this no problem. Many estate agents and developers will also request you provide them with a mortgage in principle before they can accept your offer and take the property off the market. If you know before making an offer that this is the case, we’ll apply for the mortgage in principle beforehand so you can go in ready if it’s accepted!
If you’ve got any questions about the mortgage in principle or you’re looking to get one sorted, please get in touch. Similarly, if you want to borrow more than your current mortgage in principle says or you’ve had a one rejected with one bank and are worried it means you can’t get a mortgage, get in touch and we can let you know what is possible.