Documents needed for mortgage preapproval

Mortgage Pre-Approval

 

 

 

Getting Your Mortgage “Agreement in Principle” (AIP) in the UK

 

As you navigate the home-buying process in the UK, it’s important to understand the steps as well as the terms used by mortgage lenders, which are very likely to include pre-qualification and Agreement in Principle (AIP) (often called a Decision in Principle (DIP) or Mortgage in Principle).

 

Prequalified or “Agreement in Principle” — what’s the difference?

 

Mortgage pre-qualification is generally a quick, simple, and informal process.1 You might provide a mortgage lender or mortgage broker with some basic personal financial information, including your estimated income, existing debt, and assets.2 Based on this information, the lender or broker will give you a tentative assessment of how much they might be willing to lend you toward a home purchase. Prequalification can usually be done over the phone or online and often at no cost.3

 

Key characteristics of UK pre-qualification:

  • It’s a very preliminary estimate.
  • It’s often based on self-declared information and may not involve any credit checks.4

     

  • It is not a guaranteed loan.
  • It’s useful for getting a very rough idea of your affordability at the very start of your property search.

Mortgage pre-approval in the US is largely equivalent to an Agreement in Principle (AIP) or Decision in Principle (DIP) in the UK. This is a more significant milestone in the process because a lender is actually checking your credit and (to a certain extent) verifying your financial information. If you get an AIP/DIP, a lender is making an actual commitment in principle (subject to further conditions such as a satisfactory property valuation and full financial verification) to loan you money.5

 

Key characteristics of a UK Agreement in Principle (AIP/DIP):

  • It involves providing more detailed financial information (e.g., income, outgoings, employment history).6

     

  • The lender will typically perform a soft credit check, which does not affect your credit score and is usually not visible to other lenders.7

     

  • It’s a more formal indication of how much a lender is prepared to lend you.
  • It is not a full mortgage offer or a guarantee that you will receive a specific rate or mortgage from that lender, as circumstances may change or further checks are required.8

     

 

How an Agreement in Principle (AIP/DIP) works

 

Getting an Agreement in Principle means you’re preparing to take the next significant step in the home-buying process. Consider working with a mortgage advisor or broker to help guide you through the process. Once you have selected one:

  1. You and your mortgage advisor will discuss your financial strategy and needs, including your desired mortgage amount, deposit, and target purchase price.
  2. You’ll learn about the various available mortgage options (e.g., fixed-rate vs. variable-rate, interest-only vs. repayment, different product terms, etc.) and discuss which of them best suits your needs.
  3. With your consent, your mortgage advisor will take an application, which will require you to provide details on such items as employment, income, assets, deposit (if applicable), and liabilities (existing debts).
  4. You’ll give the lender permission to obtain a credit bureau report (usually a soft search for an AIP/DIP).
  5. Your mortgage advisor will advise you about any specific documentation (e.g., income confirmation, deposit confirmation) you’ll need to supply upon conditional approval of your mortgage (i.e., when you proceed to a full application).9 Any conditions must be met for your mortgage to be fully approved.

     

  6. AIPs/DIPs are subject to your continued good credit and are usually good for 60, 90 or 120 days depending on the lender.10

     

 

Why get an Agreement in Principle (AIP/DIP)?

 

  • You’ll save time house-hunting, seeing only homes you can realistically afford.11

     

  • You’ll have a better idea of your potential monthly payment amounts, as well as how much your deposit will be.
  • Estate agents may serve you better because they know you’re serious and ready to buy.
  • When you make an offer to purchase, the seller may be more likely to give it serious consideration because you have solid financial backing.
  • Your AIP/DIP status may give you more negotiating power with a seller.
  • Some lenders may allow you to “rate lock” or “reserve” a specific interest rate for a period (e.g., 90-180 days) after your full application, protecting you from rising interest rates while you look for a new home. (Note: Rate locks are typically offered at the full application stage, not just at AIP/DIP, but some lenders might offer an initial rate reservation earlier.)
  • There’s usually no cost to you for an AIP/DIP and you’re not obligated to accept the mortgage.

 

Get your financial paperwork in order

 

You are under no obligation by getting an AIP/DIP, but you want to be comfortable with the amount and terms of your potential mortgage. That’s why it’s essential that you review all your personal expenses and have a good idea of your future expenses before you talk with a mortgage broker or lender about an AIP/DIP. Understanding your true affordability is crucial.

Consult a mortgage specialist with questions on the AIP/DIP process or start your AIP/DIP online now.