Mortgage Agreement in Principle

Gingermoneysaver

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Hi all

My husband and I are looking to buy our first home so apologies if this is a very basic question, but can someone explain to me the process and implications of getting a mortgage agreement in principle? I.e. how long does it last for, do you need a specific property in mind to get one or just know value you are looking at, can you approach different lenders for them and choose the best one, are there any costs involved etc.
We are viewing houses at the moment so I'd like to know if it is worth us getting a MAP before making an offer (we have previously had an informal conversation with one of the brokers at our bank to confirm that we would in theory be able to borrow the amount we are looking to spend on a home).
Other info in case it is useful, we'd be looking at 90%LTV on the mortgage.

Thanks so much!

Zogger

Not an expert but I can give you my incomplete experience...

When I started looking I contacted L&C (broker) who gave me an 'agreement in principle' which was based just on what I told them about my income and situation. This didn't involve a credit check - they told me to call again when I had a specific property and I could then go further in the application process with a specific lender.

More recently I've been in the situation of considering an offer on one property (didn't work out) to offering on another property (still waiting on this one) and I wanted to get a more up to date look at interest rates and a new AIP so I looked at direct rates and different lender's affordability calculators. Based on pretty much the best rate I thought I could get I used the nationwide website to go through the start of the application process based on what I thought I would be paying for the property. After doing a credit check they give you an agreement in principle. Then the next question is 'do you have a specific property in mind' - if so you can continue the application online otherwise you need to wait until you have an offer accepted and call them to go through the rest of the application...
The AIP they gave me was exactly for the amount I was looking for, i.e. even if I could borrow more it was only given up to the price of that property
Since the second property I was looking at was more expensive I called them up to amend the AIP and they did so over the phone just by re-doing the affordability checks and not re-doing the credit check. It's valid for three months but that doesn't really mean that much because the deal might disappear in the meantime or their affordability criteria might change

So that's how it worked with them, I suspect it's similar with other direct applications!

Main thing to note is getting an AIP directly from a lender will normally involve a credit check - so really keep the number down as much as possible or you might find your credit checks damage your chances of getting a mortgage for the amount you want

KateLiana27

You just call up a bank/lender, they go through a number of questions relating to your income, financial commitments, etc - basically anything that helps them get an idea of what you can afford without being an excessive risk to them. They will ask how much you are looking to borrow and will make an offer on this basis (ie if you say you want £100 000, this is the maximum the AIP will be for, even if they would happily lend you twice that) so think carefully what you might need.

They will do a credit check which will show up on your credit record. For this reason, I wouldn't recommend getting more than one. Also, you will need a three-year address history for all applicants to hand so get this ready before you call to save scrambling around!

They will send you a letter confirming the AIP, usually straight away. It is usually valid for 28 days only.

Plus points - vendors like it as it gives some indication that you are a serious buyer with finances in place (though of course you'll never know for sure until you make the full application after a sale has been agreed). So on the whole, you are more likely to have an offer - or a slightly lower offer - accepted.

Negatives - credit check. A single one won't hurt but bear in mind if you don't find a house within the valid period, you may have to apply again. And again.

Personally, now that you have had an informal chat about what you can borrow, I would wait until you have identified a house you like, then get an AIP just before putting in an offer. As you can get it straight away and the paperwork within 24 hours, this shouldn't delay things. Best of both worlds.

kingstreet

It's difficult to establish if the lender with the best deals today will be the one with the best deals when you're ready to buy. So you may have an unnecessary credit check.

Instead of an agreement in principle, you could obtain your credit files from the three credit reference agencies to make sure there are no nasty surprises and use the lenders' online affordability checkers to see what price range and payment level is going to be most comfortable for you.

If you come across anything untoward, post back in here. There's plenty of us who can explain the issues to you.

daisiegg

Just a word of warning, we had a couple of agreements in principle before we put the offer on our house from two different lenders, and then when we did the actual application, neither of those would give us a mortgage (we eventually got it from somewhere else but had to get a mortgage broker and it was very stressful!)

I think agreements in principle are good to get an idea of what might be available to you but don't rely on them as being a definite indication that you will get that mortgage. We really thought having the agreement in principle meant we'd have no problems getting the mortgage and it was a horrible shock when we found out that wasn't the case!

Gingermoneysaver

Everyone - thanks so much. It sounds like we should wait until we have a place found, given that we know in theory at least we should be able to get the amount of money we are looking for. Now we just need to find a house!

wastedtalent

I went to Halifax and walked out half hour later with one valid for 3 months. It may not be the one I finally go with, but it gives me both an idea of how much I can borrow/afford, and also means I can walk into Estate Agents and they might take me seriously.

SilverSix

Spent 45 minutes in my Nationwide and walked out with a AIP certificate for £X amount. Valid for 3 months IIRC.

Just pop in but you will need to take a couple of payslips and statements from bank accounts (for deposit/savings proof) and any other funds (ISA/Stocks/Shares/Bonds) that give you an income or classed as savings.

They'll briefly assess your affordability depending on the amout you wish to borrow and what type of mortgage.

Providing you're not boarderline or have a bad credit history there shouldn't be much of a reason for them to decline an application once given an AIP.

kingstreet

wastedtalent wrote: »

I went to Halifax and walked out half hour later with one valid for 3 months. It may not be the one I finally go with, but it gives me both an idea of how much I can borrow/afford, and also means I can walk into Estate Agents and they might take me seriously.

We get plenty of people on the M&E board who fail at full application having had a mortgage promise (MP) from Halifax.

An MP leaves a soft footprint and it does this by not checking account information. Therefore a default would not come up at MP but will at full app.

In addition, MP does not take into account shared ownership or shared equity. At full application this is rectified and automatically reduces your score to the next lower banding - A to B, B to C etc. So you can go from fast-track to full documentation, or pass to fail. I had a SE case last year and the maximum borrowing dropped despite a B pass at MP as it turned into a full application on shared equity.

ruggedtoast

It depends on how many checks they do for the AIP I think. You can get one done online just with a credit check and some basic information about your income. The credit check will leave a footprint on your record.

wastedtalent

kingstreet wrote: »

We get plenty of people on the M&E board who fail at full application having had a mortgage promise (MP) from Halifax.

An MP leaves a soft footprint and it does this by not checking account information. Therefore a default would not come up at MP but will at full app.

In addition, MP does not take into account shared ownership or shared equity. At full application this is rectified and automatically reduces your score to the next lower banding - A to B, B to C etc. So you can go from fast-track to full documentation, or pass to fail. I had a SE case last year and the maximum borrowing dropped despite a B pass at MP as it turned into a full application on shared equity.

Yea understandable, the MP says we can borrow a lot more than we could comfortably afford. I guess i know my position though, and others should be wary if they have bad credit history and stuff.