An agreement in principle, known as an AIP, DIP, mortgage in principle and decision in principle (depending on where you look), is a document that shows a seller that you are ready to proceed with a purchase and mortgage. It also allows you to make an offer on the property in question, proving to be useful when negotiating on the asking price.
Once you have passed the lenders initial credit checks, you will be able to obtain your own agreement in principle. Many first-time buyers in Bristol aren’t too sure of how they work, however, so below we’re going to explain how they work, how they affect your credit score and the length of time they last for.
The effect an agreement in principle has on your credit score entirely depends on the type of credit search the lender decides to use. Generally you’ll find they will either perform a soft credit search or a hard credit search.
Understandably, especially for a first time buyer, you may not know the difference between the two. Allow us to explain;
For the most part, lenders these days will now carry out a soft credit search over a hard credit search. The reason for choosing this one is because they typically require less information and there is a lot less chance of your credit score being affected by a soft credit search.
Whilst whoever is undertaking the soft search will be gaining less information about you from it, than they otherwise would’ve gotten from a hard search, an agreement in principle from one of these lenders is usually still a very strong indication to the seller of the property you’re interested in, that your application is likely to be accepted.
Hard credit searches tend to be a lot more in-depth than soft searches are. The main difference between the two credit search types is that hard credit searches can have an effect on your credit score, by leaving what is known as a credit footprint. This means that previous credit searches will be visible to anyone else looking at your file in the future.
If you have a good credit score, this won’t really be a problem. Where it can be an issue, is if your score is lower and you have had multiple hard searches on your file. This is because, to a lender, it can look like you are trying to apply for lots of credit at the same time. It’s likely that this will put them off.
As much as we would like it to be so, nobody can ever be guaranteed a mortgage, but having an agreement in principle arranged in advance will definitely work in your favour.
Once you have given the lender with all your documents, an underwriter will review your case and proceed to make a final decision. Agreements in principle will often include small print that applicants can easily miss. It’s reasons like this why getting in touch with a mortgage broker in Bristol can be helpful to you.
We often find that in some cases when people get in touch, enquiring about an agreement in principle, they’ve been turned away at full mortgage application stage.
The documents that you’ll need to give the lender include, but are not limited to, forms of ID, payslips and bank statements. As a dedicated and experienced mortgage broker in Bristol, we take a lot of pride in helping you be prepared for your mortgage process. Once you start your mortgage process, it may be worth looking at how to get prepared for a mortgage in Bristol.
Making sure you have your agreement in principle in place when you’re ready to make an offer is a necessary step. Any estate agent with an ounce of credibility will ask for evidence that you are able to proceed with the purchase of a property.
Your agreement in principle will typically expire around 30-90 days. When this happens, your mortgage advisor can renew it for you. We are usually able to obtain one an agreement in principle within 24 hours of your initial mortgage appointment.
As an experienced mortgage broker in Bristol, we would suggest that you obtain one of these as early as you can. We say this so that you can try to avoid being told you aren’t eligible for a mortgage on your dream home.
The good thing about having your agreement in principle and it lasting a good length of time, is that you don’t just need to apply for the first home you see. You have time to look around and find one that suits you best.
If you are a first time buyer in Bristol or are looking at moving home in Bristol, please get in touch and take advantage of our mortgage advice service. We offer a free initial mortgage consultation, where you will get to speak with one of our expert mortgage advisors.