What is an ‘Approval in Principle?’

An approval in principle (AIP) can also be referred to as an agreement in principle or a decision in principle. In simple terms this is what a mortgage provider would be willing to lend you based on the financial information you have supplied to them.

Usually the mortgage lender will supply you with a certificate stating the approval, and how much they are willing to lend you in principle, but if this is not the case; your mortgage broker will be able to liase with the lender to produce a letter on their behalf stating the agreement details.

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Are there any benefits to getting an ‘Approval in Principle?’

If you have already decided upon a particular property to buy, having an approval in principle will mean the estate agent will look upon you more favourably with regards to a purchase than someone who has come into the office without any pre-arranged agreement in place.

The vendor selling the property you are interested in will also be more inclined to take your offer seriously. When you make the vendor an offer on the property, they will know that you already have an approval in principle in place with a mortgage lender for a sum of money sufficient to purchase the property, and therefore would have less risk of the sale falling through with you than with someone without an approval in place.

What is the process for getting an ‘Approval in Principle?’

Obtaining an approval in principle will require submission of detailed financial statements such as your income from employment, your financial commitments such as existing loans and debts, and a background credit check.

This information is necessary for the mortgage lender to establish whether you are a good person to lend money to. They will then be able to work out how much money they are willing to lend you in principle depending on some terms and conditions.

How long does the approval process take?

With some companies it can take as little as 30 minutes to give you an approval in principle, however this does depend on their current workload. If you are requesting an approval shortly before a national or bank holiday for example, then you can expect some delay in having your AIP returned. On average, most lenders will reply with your AIP within one to two working days.

Are there any downsides?

Probably the main downside of obtaining an ‘Approval in Principle’ is how the necessary credit check will affect your credit record. Usually running 2 or 3 credit checks per year does not do any damage to your credit record, but having 5 or 6 within a six-month period for example may have an impact on your mortgage lenders decision.

Bear this in mind if you are applying for loans or credit cards, or take out a store card just before you plan to take out a mortgage. It may be worth delaying these actions until after you have secured your mortgage.