If you are planning to buy a house, you must be familiar with the term “agreement in principle” in mortgage. It is an important step in the mortgage application process that can help you determine the amount of money you can borrow. In this article, we will explain what an agreement in principle is and its significance in the mortgage application process.
What is an Agreement in Principle?
An agreement in principle (AIP) is a document issued by a mortgage lender that indicates how much money they are willing to lend you. It is also known as a decision in principle or a mortgage in principle. An agreement in principle is not a binding agreement, but a conditional offer that the lender would lend you the money based on certain conditions. It is usually valid for up to 90 days.
Why is an Agreement in Principle Important?
An agreement in principle can be helpful in several ways:
1. Gives You a Clear Idea of How Much You Can Borrow:
Before you start house hunting, it is important to know how much you can afford. An agreement in principle gives you an accurate estimate of how much money you can borrow based on your circumstances.
2. Helps You Secure a Property:
An agreement in principle can give you an advantage over other buyers in a competitive property market. It shows the seller that you are a serious buyer who has been pre-approved for a mortgage.
3. Speeds Up the Mortgage Application Process:
By obtaining an agreement in principle, you can speed up the mortgage application process as the lender has already assessed your financial circumstances.
What Information is Required for an Agreement in Principle?
To obtain an agreement in principle, you need to provide the following information:
1. Your personal details: such as your name, date of birth, and current address.
2. Employment information: such as your current job, salary, and employment contract.
3. Financial information: such as your income, monthly expenses, and any outstanding debts.
4. Details of the property: such as the address, the value of the property, and the deposit amount.
Conclusion:
In conclusion, an agreement in principle is a crucial step in the mortgage application process. It gives you a clear idea of how much money you can borrow and helps you secure a property. It is important to note that an agreement in principle is not a binding agreement and is subject to certain conditions. Therefore, it is important to review the terms and conditions carefully before committing to a mortgage offer.