All First Time Buyers need to get an Agreement in Principle at some point in the process when buying their first home. But do you need to get an Agreement in Principle before viewing properties?
An Agreement in Principle (AIP) is also commonly referred to as a Mortgage in Principle or a Decision in Principle. The three terms all mean the same thing. As a First Time Buyer, an Agreement in Principle is an indication that your current financial situation is adequate enough for a mortgage lender to consider giving you a mortgage.
An Agreement in Principle is not a guarantee for a mortgage; it is an indicative preliminary assessment by a mortgage lender, based on the limited information about your finances that you provide in an AIP application.
However, while an AIP is not a guarantee for getting a mortgage, it is a very useful document to have. Many estate agents will ask if you have an Agreement in Principle before viewing properties. Why would estate agents ask you for an AIP? This is because an Agreement in Principle, as a First Time Buyer, means that you are (1) serious enough about buying a property that you took the effort to secure an AIP, and (2) you stand a good chance of getting full approval for a mortgage. Estate agents hate timewasters who are not serious or First Time Buyers who stand no chance of getting a mortgage.
There is no legal requirement to get an Agreement in Principle before viewing properties. Many estate agents will still show you properties even if do not have an AIP. However, getting an Agreement in Principle will save you time after your offer is accepted and will give you confidence that you can get a mortgage for the amount that you want. In addition, if you do not have an AIP, estate agents will try to “introduce” you to their mortgage broker partners, whom they will earn a commission. This wastes your time. An AIP is easily obtainable online, free of charge, from many mortgage lenders directly. There is no need to talk to a mortgage broker, unless your financial situation is complex.
How much money to request for Agreement in Principle
At First Time Buyer Help, we strongly recommend you do not get an AIP for the maximum price you can afford. You will have to show the AIP document to the estate agent, and you do not want to reveal the maximum amount you can afford. Rather, get an AIP for the average house price in your budget. Even if properties you view are more than the Agreement in Principle amount, that is ok; the AIP is less about the absolute amount stated, but more about the fact that the mortgage lender or bank thinks you are creditworthy and have the right financial situation to lend to.
Once you have more certainty about how much money the mortgage lender is willing to lend you, along with the minimum deposit you need to buy a house, you can narrow down your search for properties to only those that you can afford.
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Getting an Agreement in Principle may save you wasted time
We strongly recommend getting an Agreement in Principle before viewing properties. This is because viewing properties take up a lot of precious time, especially weekends. Many First Time Buyers assume they will be able to get a mortgage, but there are many factors that might prevent a bank from lending to you. The Agreement in Principle application process will help to unearth if there are any major issues to getting a mortgage, and more importantly, the amount of money you want to borrow.
It is better to find out early on that you cannot get a mortgage than to find out later on, when you have invested lots of time and emotion into searching for your first home.
List of banks that give an Agreement in Principle online
Below is a list of the top banks that you can apply for an Agreement in Principle online. With an online application, you might be able to get an almost-instant Agreement in Principle document, that you can provide estate agents before viewing properties.
Barclays – agreement in principle online application
Natwest – agreement in principle online application
Santander – agreement in principle online application
Lloyds Bank – agreement in principle online application
TSB Bank – agreement in principle online application
RBS Bank – agreement in principle online application
Frequently Asked Questions (FAQ) on Agreement in Principle for mortgages
Is a Mortgage in Principle the same as Agreement in Principle?
Yes – the official term is Agreement in Principle for a mortgage. But you will often hear the terms Mortgage in Principle or Decision in Principle as well. They all mean the same thing – an Agreement in Principle for a mortgage application.
This is a sheet of paper from the mortgage lender, stating that based on the limited information provided during the AIP application process, that they would be happy to lend up to £x amount for a property purchase.
Should you get preapproved for a mortgage before looking?
In the UK, there is no such concept of “preapproval for a mortgage” like there is in the USA, due to the difference in the house buying process. However, an Agreement in Principle is a form of preapproval, in that the mortgage lender assesses your financial situation on a high level and gives an indication of what they might be prepared to lend for a house purchase.
However, an Agreement in Principle is not binding – you will still have to go through the full mortgage underwriting process, once you have agreed an offer with a property seller.
While an Agreement in Principle is not required before looking for houses, we strongly recommend getting an Agreement in Principle before viewing properties.
When should I get an Agreement in Principle?
There is no requirement to get an Agreement in Principle at a specific point in the house buying process. However, we strongly recommend getting an Agreement in Principle before viewing properties. This will save you wasting time viewing properties if there is something in your financial situation that makes it difficult to get a mortgage. In addition, an Agreement in Principle will help you to narrow down what properties you will be able to afford, and therefore you can narrow down your house search by price point.
How long does it take for a mortgage in principle to be approved?
A Mortgage in Principle, also known as an Agreement in Principle, might be instant if you use one of the online services provided by a mortgage lender. However, it can take up to 3 working days to get a Mortgage in Principle, especially if you go through a broker or if you have a slightly complicated financial situation that requires a manual review for your AIP.
Therefore, you should ensure you apply for your Mortgage in Principle ahead of scheduling any property viewings, as estate agents are likely to ask you if you have a Mortgage in Principle when you call up to book viewings.
See our section above about the list of banks that provide online applications for Agreement in Principle; many of them will give an instant decision.
How far in advance should you get preapproved for a mortgage?
In the UK, there is no concept of preapproval for mortgages, like there is in the USA. However, you can get a version of “preapproved” which is called an Agreement in Principle in the UK. This is a document that outlines that a mortgage lender is willing to lend you, and the amount, based on some information about your financial situation. You should try to get an Agreement in Principle before viewing properties. This will give you confidence that you can get a mortgage, and thus are not wasting your time viewing properties. In addition, getting an AIP will put you in a good position when you are making your offer, as sellers prefer buyers who can show an AIP, as there is less likelihood of your mortgage application running into difficulties.
How reliable is a Mortgage in Principle?
A Mortgage in Principle is not a guarantee that the mortgage lender will give you a mortgage. It is a limited assessment by the lender, based on some high level financial information that you provide during the Mortgage in Principle application.
However, most of the common reasons for ineligibility for a mortgage will surface when you go through the Mortgage in Principle application. It is a good check to ensure that you have the right financial situation and credit record, to get a mortgage.
Once you have an offer accepted on a property, you will still have to through the full mortgage underwriting process, even if you have a Mortgage in Principle decision.