When Do I Need An Agreement In Principle?

Do I need an agreement in principle?

If you are looking to buy a property, needing a residential mortgage, it is wise to get an agreement in principle before your search.

The reason is, getting a mortgage agreed in principle in advance, should reduce pressure when you are making offers.

If you do not have an agreement in principle in place when you offer on properties, the agents may not be willing to take your offer seriously.

This is because, if finance is needed, and it seems that your mortgage options have not been explored, they may worry that you cannot get the mortgage that you need.

Also, agreement in principle does not always reflect the lending amount showing on the affordability calculators. Your credit score may also result in a different amount being suggested by the lender.

Getting an agreement in principle will show that a lender has had a brief look at your situation and credit file before issuing a mortgage certificate.

This shows that you have done what you can so far and are serious about buying a property.

What is the difference between an agreement in principle and a full mortgage offer?

The two are very different. With an agreement in principle, the lender has not had a full look at the situation, usually not reviewed any documents, and the property has not been valued.

As a result, it is only an initial check, looking at a credit file, issuing a decision to confirm that if all is good following a full underwriting process, a mortgage offer should follow.

With a full mortgage offer, this means that the case has been fully underwritten. Underwriting of a mortgage means assessing the applicant’s documents and carrying out a valuation of some sort to confirm that the property meets lending criteria.

When a full mortgage offer is issued, this is a much more firm outcome, meaning that if the legal work goes through successfully, and there are no changes to report, the full mortgage should now complete.

When should I get an agreement in principle?

It is recommended to get an agreement in principle before looking at properties.

Once you’ve been told what you can afford to borrow, and are happy with the figures, it would be worth getting the mortgage provisionally agreed.

Doing this before looking at properties should reduce some of the time pressure and allow an estate agent to take your offer seriously.

Do I need an agreement in principle for a buy-to-let mortgage?

If you are taking a buy-to-let mortgage to buy an investment property, it is still sensible to get an agreement in principle.

Buy-to-let mortgages are underwritten differently to residential mortgages. The lender will be assessing how much rent the property will generate, but also interested in the applicant’s personal income and credit file.

Like with residential mortgage, a buy-to-let mortgage is not guaranteed.

As a result, getting a buy-to-let agreement in principle early will demonstrate that you are in a position to get a buy-to-let mortgage subject to full underwriting.

Your mortgage adviser will be able to arrange this for you.

Is my mortgage rate secured with an agreement in principle?

With most lenders, an agreement in principle does not lock in a mortgage rate.

Full applications usually need to be done in order to secure the interest rate. However, there are some lenders that will honour an interest rate for a certain period if the agreement in principle was submitted and the rate applied for is confirmed.

For example, this period may be one week.

This does depend on the lender so make sure to ask your mortgage adviser whether your agreement in principle secures your rate of interest.

Can you make an offer without a decision in principle?

Some estate agents may be happy for you to make an offer on a property without an agreement in principle.

However, they have a duty of care to their client selling the property, as they are paying the estate agency fee.

If you are planning to buy the property using a mortgage, it is important they verify that you have looked into the mortgage process to make sure that you are eligible.

If you cannot demonstrate this, they may not be comfortable encouraging their client to accept your offer.

Getting a mortgage in principle done in advance will show the agents and the sellers that a lender has carried out a credit check, and loosely reviewed your situation before issuing you with an agreement in principle certificate.

Will an agreement in principle involve a credit check?

An agreement in principle with a lender involves a credit check.

This means that as well as looking at your situation briefly (usually without the underwriting of any documents), they will also be looking at your credit file to view your credit conduct.

Depending on the lender, they may be carrying out a soft or hard credit search.

A soft footprint on your credit file cannot be seen by creditors, only yourself. A hard credit search can be seen by future creditors when they carry out a credit check.

If a lender carries out a soft search at agreement in principle stage, they will usually then do a hard search when a full mortgage application is submitted.

Your mortgage adviser should be able to confirm whether the lender that they are looking at will conduct a soft or hard credit search.

If you wish to know more about your credit file, you can go to Check My File and sign up for a free trial. Check My File shows date from Experian, Equifax and Transunion.

Do I need a mortgage adviser for an agreement in principle?

You do not always need a mortgage adviser for an agreement in principle. Some mortgage lenders allow you to go direct, whether in branch, on the phone, or online.

However, it is always prudent to consult a qualified mortgage adviser when you are looking at taking a mortgage.

Mortgage brokers are familiar with the entire mortgage market, therefore knowing who to approach based on your situation.

Mortgage advisers will spend time learning about your individual circumstances before recommending a mortgage accordingly.

They can then apply for the agreement in principle on your behalf. Most mortgage advisers are willing to offer a free consultation.

Make sure that the adviser that you are using is regulated by the Financial Conduct Authority.

Do you need an agreement in principle for a bridging loan?

If you are looking to take a bridging loan, demonstrating to the agent or seller that this has been explored, would always be a good idea.

Bridging lenders may not offer mortgage certificates in the same way that a residential buy-to-let term mortgage lender may.

However, you will be able to show the agent or vendor that a bridging loan broker has explored your options, and believes that they have a route available to you.

If you are looking at taking a bridging loan, make sure that you get professional advice and are clear on your exit strategy.

Do you need an agreement in principle for a commercial mortgage?

Even if you are taking a commercial mortgage to buy a property such as a retail unit, a pub, office, factory and so on, you may be required to demonstrate you can buy the property before offering.

Like with a bridging loan, a commercial mortgage lender may not offer formal certificates to verify your position.

However, a commercial mortgage broker should be able to offer confirmation that you have been looking into your options, and they can get terms for you.

Most commercial mortgage brokers will be willing to offer a free consultation before any chargeable work begins.

Your commercial mortgage broker will likely be a member of the National Association of Commercial Finance Brokers.

Do you have to pay for an agreement in principle?

Most mortgage advisers would not charge you for getting an agreement in principle. The reason is, this is fundamental to working out whether they are in a position to get you a mortgage.

Many will agree to arrange the agreement in principle for you, with chargeable work beginning at full application stage, depending on their fee structure.

However, each mortgage broker has a different fee structure, some not charging at all.

It is important that you ask your mortgage adviser during the consultation, how the fees work.

This is because some mortgage advisers may charge for an agreement in principle, so best not to assume that they don’t.

They will be able to explain to you at what point charges begin so you are clear on fees involved.

Conclusion

Getting an agreement in principle early is always recommended to put you in the best position to get an offer accepted.

Being able to show the agent or seller, that you have explored your mortgage options, and being credit checked by the lender, may give them more confidence in accepting your offer.

Even if you were taking a buy to let mortgage, commercial mortgage or bridging loan, you should still explore what is available before proceeding to formal offers on properties.

Most mortgage advisers will be willing to get you an agreement in principle without charging a fee. You should however get this confirmed before they do any work for you.

If you would like I NEED ADVICE to match you with an experienced mortgage adviser, that can explain your options, and arrange an agreement in principle, please complete the contact form.