15 Aug Can a Mortgage in Principle help to buy a new home?
If you’re thinking now is the time to get onto the property ladder, or move to a new home, you’ve probably heard the term “Mortgage in Principle” mentioned. While there is no law here in the UK that a Mortgage in Principle is compulsory to buying a new a home, there are several reasons why many on the lookout for their next mortgage will reach out to get a Mortgage in Principle from a lender, before they pop the application in for a full and legally written Mortgage offer.
If you’ve heard of the term but you’re not quite sure what it is, we’ve decided to cover it in our blog to help you to decide if it’s something worth doing now. Remember, we are the leading estate agents in Colnbrook so if you have any questions, or already have your Mortgage in Principle in place and want to buy or sell in the area, make sure you give us a call on 01753 683000 or email us.
What is a Mortgage in Principle?
Also known as an “Agreement in Principle” or “Decision in Principle”, it is an initial agreement from the lender that will give you an idea of how much money they are willing to lend to you as the buyer for a mortgage, and at what rate.
The figure that they are able to give you is given based on documents and information you are able to provide to them about your situation along with the rates within the market at the time. While they will provide you with an amount you are likely to be able to borrow, it is important to keep in mind that the final mortgage offer will need to be underwritten legally before a formal Mortgage Offer can be made to you, this is just a very good guide to get you started in your search.
What documents do I need to supply to get a Mortgage in Principle?
You’re likely to be asked for a quite a bit of information on your financial position and lifestyle, however it should be fairly easy for you to get the documents together. The lender may want to see a number of recent payslips, your bank statements and they will want to confirm any credit agreements, utility bills and ask questions about your lifestyle, they will also want to know your previous addresses. If you are self-employed it is a good idea to have an accountant review and present your income and expenditure information to confirm your affordability.
Do I need to get a Mortgage in Principle?
As mentioned above, it is not required by UK law but it is helpful to you in a number of ways when buying a new home, and can help speed up the process for you.
Firstly, it gives you a figure to work with and begin your property search knowing the budget you’ve got to play with, without the risk of offering on something you can’t afford. It can also be a good indicator that you can meet the mortgage providers criteria as you will still need to pass affordability checks before being issued with a Mortgage in Principle.
By having a Mortgage in Principle figure in place will show your agent and the buyers and sellers in the chain that you are in serious position to be able to move. Getting a Mortgage in Principle is a much quicker process than the full mortgage application, which can allow you to get on with offering on homes, knowing what you need to accept on your own home if you’re already a homeowner, and can also speed up the application for a full mortgage as your lender will already know of you.
Once you have decided that you want to move, the sooner you find a lender or a Mortgage Broker, and apply for a Mortgage in Principle, the better position you will be in. Most lenders will offer the agreement free of charge, so it should not cost you anything to get yourself in a good position to get looking for your next home. If you’re unsure of who to go with, you can also check in with a Mortgage Broker, who will be able to confirm any additional costs for their time in helping you to find the right lender. Most agreements will last 60-90 days, it does vary by lender so ensure to ask them about this. If you haven’t found a property in time though, don’t worry too much just apply for another agreement and it should be fairly straightforward unless anything in your previous application has significantly changed.
Will a Mortgage in Principle guarantee that I can get a final Mortgage Offer with the lender?
A Mortgage in Principle will give you a strong idea of what you can afford however, many more in-depth checks are made when applying for a full Mortgage Offer, so ensure to be completely honest when asking for a Mortgage in Principle so that there isn’t likely to be anything that can pop up and surprise you when you go for back to get your Mortgage Offer.
You can still be rejected for a Mortgage in Principle, reasons could include a poor credit rating, being in debt or overspending on credit cards, moving jobs a lot, not having the accounts available if you are self-employed, low income or not enough of a deposit. While it may not be great to hear you’ve been rejected it can be good thing to know how you can make changes now before you make an offer on a property, or put in for a hard credit search through a full mortgage application. The number of hard searches that are done on your credit file can also affect your eligibility. Always try to find out why you were rejected before applying elsewhere, other lenders may provide you with an offer but it is good to know, and try to fix the issue, before you reapply.
If you’re not sure if you’re likely to get a Mortgage in Principle, speak to a Mortgage Broker.
While it may cost something, a good Mortgage Broker will have knowledge and access to a number of lenders and deals that may not be available to the public. While it may cost a little to do so, it can save you a fair bit over the full length of your mortgage term, if you think repayment is likely to be over a few decades.
Get in Touch
If you are looking for your next property in Slough or the surrounding areas, we are the leading independent letting agents in Colnbrook and are location experts. If you have any further questions about Mortgages in Principle, or Mortgage Offers, we will endeavour to help you. So, contact us on 01753 683000 or email us. You can also follow us on Facebook, LinkedIn, and Instagram.