What Is a Mortgage in Principle?

What is meant by a mortgage in principle and why is one needed?

When it comes to buying a residential property, there are many terms and phrases which you may not be familiar with. Often it’s also the case that many of the definitions that exist online are wordy, long, and confusing to follow – leaving first time buyers struggling for the steps they need to take and how to go about each stage of the buying process.

One of those terms is ‘mortgage in principle’ – and in this blog post we explain precisely what it means.

What is a mortgage in principle?

You may see the phrase ‘agreement in principle’ banded around alongside articles on mortgages and mortgages in principle. They are the same thing – the full name for a mortgage in principle is a ‘mortgage agreement in principle’.

In essence, it refers to an agreement, statement, or certificate, from a mortgage lender, which says that they will, in principle, lend you a certain amount to purchase a house or property.

While for some this is a requirement in order for them to be able to put in an offer on a property and prove to the seller and seller’s agent that they can in fact afford the property, for others is forms a way of recognising exactly how much they have in their buyers budget. And in other cases, still, a mortgage in principle was never part of their experience – it all comes down to individual situation.

In short, however, a mortgage in principle is a statement from a lender which outlines exactly how much they are prepared to lend to you, provided that you front the deposit you claim to have and can prove your eligibility and income for mortgage repayments.

Why do you need a mortgage in principle?

Mortgage application

In most cases, a mortgage in principle is required by the estate agent in order to prove that you can afford the mortgage on the property you want to purchase. Estate agents have their own ways of working and so the process may vary depending on where you are and which agent you work with, however some will not even accept an offer without the proof of a mortgage in principle.

For buyers, a mortgage in principle is also a great way of recognising exactly how much a lender will be prepared to lend to you – and thus how much is in your budget for property purchase. In advance of putting in an offer or applying for a formal mortgage, this stage of the process can help you to identify any issues with your credit score and sort them out before progressing to the next stage.

Things to note and be aware of

The most important thing to note is that a mortgage in principle is not a mortgage offer and should only be used as an indicator of what you could borrow.

Another thing you need to know is that in order to provide you with a mortgage agreement in principle, most lenders will run what’s known as a hard credit search on your name and credit history – thus leaving a mark on your credit report which shows a lender has been approached. This shouldn’t have a significant impact on your credit score, but it will show up – especially if you apply for more than one agreement before each runs out.

In addition, agreements in principle change as quickly as mortgage deals – so it’s important not to read too closely into the fine details as these will likely change when you come to apply for the real mortgage. And finally, mortgage in principles last for a set period of time and then run out, requiring you to apply again. Most last between 60 and 90 days.

How do you get a mortgage in principle?

Through a mortgage lender directly, or through a mortgage broker – who will approach the best lenders on your behalf but who will charge a fee when it comes to submitting the final mortgage application to the lender prior to completion.

You will need to pull together certain documents in order to apply and receive a mortgage in principle, including payslips, bank statements, credit agreements, utility bills, and previous addresses – as well as up to date employment and income details. The more prepared you can be in advance, the easier the process will be.

If you’re in any doubt about the process, have concerns, or need more answers to questions you have, don’t hesitate to get in touch. 

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Mortgage in principle