Agreement in principle
An agreement in principle can feel like the moment a lender has said yes, especially when an estate agent asks to see it before an offer. In reality, it is an early indication; the detailed application and the property itself still have to pass later checks.
Mortgage providers use several names for this early check, including decision in principle, mortgage in principle, AIP, DIP and MIP. Whichever name appears on the document, it is based on a limited amount of information and only estimates whether you fit the lender's rules and how much you might borrow.
You will not normally pay for one, although the checks, amount and validity period vary between providers. Read what your result actually says rather than assuming every AIP carries the same weight.
What it is useful for
It gives you a more realistic search range than a generic calculator and helps demonstrate to an agent that your offer has a plausible source of finance. An agent may also ask for evidence of your deposit and whether you have a property to sell.
You do not normally need to hand over a complete financial file before an ordinary viewing. If an agent wants you to speak to its in-house broker, you may use another broker or lender. Your choice of referral service should not be confused with evidence that you can proceed.
The figure is based on early information, before the full evidence and the property have been assessed. It can change.
More importantly, the figure is a borrowing ceiling rather than a spending target, so keep using the monthly budget you set in step one even if the AIP offers more.
How an AIP may affect your credit file
Some providers use a soft credit search and some may use a hard search. Ask before submitting the application and avoid collecting several AIPs without a reason. The important issue is not that one hard search automatically ruins an application; it is that repeated applications can create questions and may reflect poorly targeted borrowing.
Broker or direct?
A broker can compare the lenders and products within the range they cover and may know which lender is comfortable with a particular income pattern or property. A direct application may be straightforward if you know the product and meet the criteria.
Ask an adviser:
- whether they give regulated advice and which lenders or products they do not cover;
- what you will pay, now or later;
- whether they receive commission from the lender; and
- what service they provide after the full application is submitted.
Preparing the documents for a full mortgage application
The lender is likely to need identification, address history, bank statements, payslips or accounts, details of commitments, and evidence of the deposit. Requirements differ, especially for self-employment, contracting, benefits, overtime, commission, a recent job change or money from family.
Make sure names, addresses, income and outgoings are consistent across the application and documents. Explain genuine differences rather than editing the story to make it simpler.
What still needs to be decided after an AIP
It does not fully underwrite you, approve the particular property, guarantee the interest rate or reserve money for you. After an offer is accepted, the lender still assesses the evidence, affordability, credit information and its valuation of the home.
What to check at this stage
- Get an AIP when you are ready to start viewing and making offers.
- Before agreeing to a credit check, ask whether it will leave a soft or hard search on your credit file.
- Continue to use your own affordable budget, even if the AIP gives a higher figure.
- Keep recent income documents, bank statements and evidence of the deposit ready for the full application.
- Before relying on the AIP for an offer, check that it has not expired and that the information behind it is still accurate.
- Remember that an AIP is not a mortgage offer; the lender will assess the full application and the property before deciding.