What is a Mortgage “Agreement in Principle”?

A mortgage agreement in principle is defined as “The agreement between a mortgage lender and you, the mortgage applicant, to lend you a specified amount of money for mortgage purposes based on the information that you have provided the mortgage lender”.

An agreement in principle is also known as a ‘Decision in Principle’ and an ‘Approval in principle’.

What are the benefits of an ‘Agreement in principle’?

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As a Purchaser

By having a pre approved agreement in principle puts you in a very strong negotiating position with your estate agent and the vendor. The estate agent, who is driven by the need and desire to sell houses, will know that you are in a position to complete on the house purchase and this will stand you in good stead when compared with a potential purchase that hasn’t been approved. Estate Agents get let down by buyers all the time when they can’t get their mortgage finance declined, an agreement in principle therefore makes you the more attractive buyer and due to this you have the opportunity of negotiating on that purchase price that much harder – It’s a win-win situation

As a re-mortgage customer

As a re-mortgage customer the benefit of an ‘agreement in principle’ is twofold: it reduces the risk of losing money in upfront fees payable to mortgage lenders and gives you peace of mind that your plans to re finance can be carried out. A lot of lenders charge non refundable booking fees which are payable when you start a mortgage application.

What does an Agreement in Principle entail?

In the majority of cases most lenders will do an electronic credit search through one of the main credit agencies such as Experian or Equifax to check the electronic data held about you – Based on this information they will decide if they would be willing to lend you money for mortgage purposes. Some lenders will do a credit search and leave what is known as a ‘Soft footprint’ and others will do a ‘Hard footprint’:

  • Soft Footprint – Is where only you and the mortgage company can see that a credit search has been performed, meaning that this type of search will not be able to be seen by 3rd parties and therefore has less potential of lowering your credit score – which can affect lenders decisions.
  • Hard Footprint – This is where you, the mortgage lender concerned and any other 3rd parties will be able to see that a credit search has taken place. There is a common thought that the more credit searches you do the more this affects your credit score – more on this later in this article.

How long will the process take?

This depends on the lender involved. Most lenders will offer an instant decision so the whole process from enquiry to a decision could be achieved within a time frame of 20 minutes. Other lenders, depending on how busy they are at that specific moment in time, or, if your enquiry needs further information can take up to 4 working days. On average, a decision from the lender is generally back on the same day as you make the enquiry based on the information provided by The Mortgage Broker (St Neots).

Can I get confirmation of the ‘approval’?

If you do get an ‘Agreement in Principle’ most lenders will provide your mortgage broker with an approval certificate that will be available to you. In the instance where a lender does not offer an approval certificate your mortgage broker should be able to confirm in writing that you have been approved which should give you and your estate agent the confirmation that you are looking for.

Are there any downsides in getting an ‘Agreement in Principle?’

In the knowledge that an agreement in principle often means a credit search, some mortgage brokers will tell you that the more credit searches that you have the more it could damage your credit file. In our experience having 2 or 3 credit searches done will not make the difference between passing and failing with a different mortgage lender. However, we wouldn’t recommend having 5 or 6 credit searches done in a short period of time as this may affect your credit file – You shouldn’t need 5 or 6 credit searches though as if you pass with one or two lenders you should pass with the majority of them. If you fail with two or 3 lenders we would suggest you get a copy of your credit file so we can ascertain the reasons behind the fail decision.