If you are currently looking for a house to buy, you may have heard the term ‘Mortgage in Principle’ or ‘Agreement in Principle’ being used. But what exactly is a Mortgage in Principle, and how long does it last?
In this blog, we’ll explain everything you need to know about a Mortgage in Principle, how it works, and how long you can expect it to last.
What is a Mortgage in Principle?
A Mortgage in Principle, also known as an Agreement in Principle, is a document that confirms how much a lender is willing to lend you based on your financial situation. It is not a guaranteed offer, but it will give you a clearer idea of how much you can borrow and the interest rate you’ll pay on your mortgage. It’s useful because it allows you to begin looking for a property with a clearer idea of your budget.
The purpose of a Mortgage in Principle is to indicate how much a lender will likely be willing to lend to you based on your current financial information. Based on your current circumstances, the lender can make an informed estimate of how much they may be willing to lend.
A Mortgage in Principle is not a formal acceptance of your mortgage application. However, it is an essential step towards getting your mortgage. The lender will perform a soft credit check and find out more about your situation to assess your eligibility for a mortgage. This will not usually affect your credit rating. You must be prepared to provide some information about your income, expenses, and debt to help the lender make an informed decision.
It’s also important to note that a Mortgage in Principle is not a guarantee that you’ll be approved for a mortgage when you make a formal application. You may also not be approved to borrow the exact mortgage amount or interest rate in the Mortgage in Principle when you apply.
Typical Length of A Mortgage in Principle
A Mortgage in Principle usually lasts for around 90 days. However, this can vary depending on the lender. It’s important to know how long your Mortgage in Principle will last so that you understand how much time you have to find a property that is suitable.
It’s also worth being prepared for any changes that may affect the Mortgage in Principle. For example, suppose you get a new job, and your financial situation changes when the Mortgage in Principle is valid. In that case, it may no longer be accurate based on your new circumstances. Therefore, along with finding a property and making a formal mortgage application before your Mortgage in Principle expires, you may also want to consider avoiding making any big life changes during this time.
Suppose you cannot find a property to purchase within 90 days. In that case, you can apply for another Mortgage in Principle. However, your lender will perform another soft credit check, and you will need to go through the same application process as you did previously. If you are still looking for a property as you are approaching the end of the initial 90-day period, the best thing to do is speak to your lender and discuss your options.
Can You Renew a Mortgage in Principle?
Most lenders will allow you to renew a Mortgage in Principle. However, to do this, you will need to undergo the application process again. This means having another soft credit check performed by the lender and providing up-to-date information about your financial situation, which may have changed since the last application.
Renewing a Mortgage in Principle can be a helpful step if you have yet to find a property within the initial time limit. However, it’s worth avoiding renewing too many times, as the lender will perform a soft credit check each time you apply. While one soft check will not usually impact your credit score, having too many applications within a short period may affect it.
Why is a Mortgage in Principle Used?
A Mortgage in Principle is a valuable document as it gives you a clear idea of how much your lender will let you borrow and the interest rate you will likely pay when you get a mortgage with them. When looking for your ideal property to purchase, you can use this information to find properties within your budget. Moreover, a Mortgage in Principle can make it easier for you to negotiate with estate agents. It demonstrates that you are a serious buyer with a clear idea of your budget.
Along with this, having a Mortgage in Principle helps speed up the application process, as you will have already provided some of the information the lender needs to decide. Once you have found a property you want to buy and have made a formal mortgage application, the lender will perform a full credit check and verify your income and expenses before making a final decision.
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