If you’re a first-time home-buyer, there is often a wealth of questions that you may have. Perhaps one of the questions you’ll be asking yourself is What is a Mortgage in Principle and How Do I Get One?
A Mortgage in Principle is also known as ‘agreement in principle’ ‘decision in principle’, or a ‘mortgage promise.’
A mortgage in principle is the amount that a lender is happy to lend you for a home, ‘in principle’, and on what terms.
It applies to the named borrowers and is subject to the approval of the property sale, whilst also taking into account things like affordability.
A mortgage in principle is not a final offer; it’s an indication of what you COULD get.
When you Need a Mortgage in Principle
Once you find the property you want to purchase, you’ve checked your affordability, and you’ve chatted to a mortgage advisor, THIS is the time to get your mortgage in principle.
At this stage, your mortgage broker will submit the information agreed to the selected lender. They will usually confirm they are happy to offer you a mortgage, in principle, based on the information provided.
This is a straight-forward process and gives confidence to sellers, that you are in a good position to proceed.
As with all aspects of the house buying process, our mortgage advisors will support you through each stage.
What is a Mortgage Illustration?
A Mortgage Ilustration differs from a Mortgage in Principle in that it outlines the details of a particular mortgage deal, while an agreement in principle is a document from the mortgage lender to say that they’re likely to give you a mortgage based on your current financial circumstances.
Some estate agents prefer you to have a Mortgage Illustration before looking at properties, so having one when you’re ready to start viewing properties, with a view to buy, is a smart idea. Without having to make a full mortgage application, you can get an idea of what you could borrow. This means you can view the properties that you can afford to buy before you get too deep with viewings.
How To Get A Mortgage In Principle
We recommend you start the process with a mortgage broker to find out your affordability with a Mortgage in Principle. This outlines what the most appropriate mortgage available to you would cost.
Knowing what properties you can realistically afford can make a huge difference.
Home sellers will usually prefer to go with offers where a buyer can show that they have a lender in place – so by having a Mortgage in Principle, it shows you mean it when you make your offer and increases the likelihood of your offer being accepted.
You will need to provide proof of your income, which you can get from payslips, ID and bills/accounts.
It doesn’t mean you have an offer but does show you what your monthly payments could be and doesn’t require a credit check.
Your mortgage advisor will help you to work out your affordability, taking into account your income, including your wages, savings, interest and your outgoings such as subscriptions, spending habits and utilities. Your mortgage advisor will also look at your debts and your rent or existing mortgage.
Every lender has different criteria, so working with someone who can quickly identify the mortgages you would be eligible for, is a great advantage.
A Mortgage in Principle will confirm the following key information to you:
- Interest rates
- How long the interest applies
- The type of interest rate applicable – fixed, discounted, variable and so on
- What the interest rate will be after the “deal” term has ended
- Any redemption fees that may apply
- Arrangement fees, if applicable
- Any potential incentives, such as a free valuation or cashback
- Any additional fees
A broker will manage all this for you, ensuring that all correct information is supplied, so there are no surprises further down the road.
When you get your mortgage in principle, you have around six months to make a decision. This can allow you some flexibility while you make your choices about the house and the mortgage deal. In this time frame, you should decide whether the deal is right for you. If you’re taking some time to find a property to buy, the interest rates could have changed by the time you find one!
Speak to a Mortgage Advisor
Find out how much you can borrow and how much you will be paying each month.
Provide accurate information to your broker and be open about any financial history, which could have a negative impact on your application.
Avoid Any Conflicts
Ensure you source a fully independent whole of market mortgage advisor. Many estate agents have a set panel of lenders to advise from, which can dramatically reduce the mortgage rates and options available.
Well known high street banks often gear their products to the majority of people and provide ‘one size fits all’ mortgages. Whilst this can be appealing it does rule out some great offers from specialist lenders with mortgages that may be a better fit and offer better rates.
At trufe. we search the high-street, specialist lenders and broker-only mortgage companies.
Start Your Journey with trufe.
Discover how our expert team can help you save money, sourcing the right products for your circumstances from our extensive database of leading providers.
The response from sellers will often be warmer if you have your Mortgage in Principle. Most properties will still be advertised, with viewings ongoing unless there is an agreement in principle. Getting your prospective home removed from the market can be hugely important in securing the purchase in a competitive market.
Is it Affordable?
Whilst you may be able to secure a significant mortgage loan, it is essential to be realistic and not place yourself under financial strain. Stamp duty, council tax and bills all tend to increase with larger or more expensive homes. If you are planning to move before changing job or starting a family, be aware of how these changes may affect your income.
Your property may be repossessed if you fail to keep up with monthly payments.
Mortgages don’t have to be confusing.
At trufe. our experienced team can help you with your Mortgage in Principle. Contact us today to take the first step of this journey together as you seek to mortgage.