What does “mortgage in principle” mean?

mortgage in principle

Reading time: 5 minutes

If you’re in the process of buying a house, you may have come across the term “mortgage in principle”. But what exactly does it mean, and how reliable is it? In this article, we’ll explore the concept of a mortgage in principle and its importance in the home buying process.

What is a mortgage in principle?

A mortgage in principle, also known as a decision in principle or agreement in principle, is a document from a lender that states how much they would be willing to lend you for a mortgage. It is not a guarantee of a mortgage, but rather an indication of how much you could potentially borrow based on your financial situation.

How does it work?

To obtain a mortgage in principle, you will need to provide your lender or mortgage broker with some basic information about your income, expenses, and credit history. This can usually be done online or over the phone, and the process is relatively quick and simple.

The lender or broker will then use this information to assess your affordability and creditworthiness. They will also perform a soft credit check, which does not leave a mark on your credit report. Based on this assessment, the lender will provide you with a document stating how much they would be willing to lend you for a mortgage.

How long is a mortgage in principle valid?

A mortgage in principle is typically valid for around 90 days, although this can vary between lenders. After this period, you may need to reapply for a new mortgage in principle if you have not yet found a property to purchase.

Why is a mortgage in principle important?

A mortgage in principle is an important step in the home buying process for several reasons.

Helps you determine your budget

Obtaining a mortgage in principle can give you a better understanding of how much you can afford to spend on a property. This can help you narrow down your search and avoid wasting time looking at properties that are out of your price range.

Shows sellers you are serious

When making an offer on a property, sellers will often ask for proof that you can afford the purchase. A mortgage in principle can serve as this proof, showing the seller that you are a serious buyer and have already taken steps towards securing a mortgage.

Speeds up the mortgage process

Having a mortgage in principle can also speed up the mortgage process once you have found a property. This is because the lender has already assessed your financial situation and is likely to have all the necessary information on file, making the application process quicker and smoother.

How reliable is a mortgage in principle?

A mortgage in principle is not a guarantee of a mortgage, and there are some factors that can affect its reliability.

Changes in your financial situation

If your financial situation changes significantly between obtaining a mortgage in principle and applying for a mortgage, the lender may reassess your affordability and creditworthiness. This could result in a lower offer or even a rejection of your mortgage application.

Inaccurate information

A mortgage in principle is based on the information you provide to the lender. If any of this information is inaccurate or incomplete, it could affect the reliability of the mortgage in principle. It is important to be honest and provide accurate information to ensure the mortgage in principle is as reliable as possible.

Changes in the housing market

The housing market is constantly changing, and this can affect the reliability of a mortgage in principle. If house prices increase significantly, the amount you were initially offered may no longer be enough to purchase the property you want. Similarly, if interest rates rise, the amount you can borrow may decrease.

How to get a mortgage in principle

To obtain a mortgage in principle, you will need to follow these steps:

1. Gather your financial information

Before applying for a mortgage in principle, gather all the necessary financial information, including your income, expenses, and credit history. This will make the application process smoother and quicker.

2. Choose a mortgage broker

Research different brokers and choose one that offers products and terms that suit your needs.

3. Apply for a mortgage in principle

You can apply for a mortgage in principle online or over the phone. The lender will ask for your personal and financial information and perform a soft credit check.

4. Receive your mortgage in principle

If your application is successful, you will receive a document stating how much the lender is willing to lend you for a mortgage.

Key takeaways

A mortgage in principle is a document from a lender that states how much they would be willing to lend you for a mortgage. It is not a guarantee of a mortgage, but it can help you determine your budget, show sellers you are serious, and speed up the mortgage process. However, changes in your financial situation, inaccurate information, and changes in the housing market can affect its reliability.

To find out more about getting a mortgage in principle, speak to one of credicus’ experts today and find out how we can help you get the right deal.

Property finance made simple.

Related Posts