Get a mortgage in principle online
Published 16th August 2017
How do I get a mortgage in principle?
If you would like to apply for a mortgage in principle today then fill out the form below. Whether you urgently want to put an offer in on a house; maybe you’ve been declined by a lender, let down by your current broker, or simply want to know how much you can borrow; fill in the details in the form below and an expert whole of market broker will take things forward for you.
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What is a mortgage agreement in principle?
A mortgage approval in principle / agreement in principle (AIP) / decision in principle (DIP) are all different names for the same thing. Basically it is an agreement to lend based on an initial assessment of your circumstances, which includes your income, outgoings, and your credit score among other things.
Once approved the lender will provide you with what’s known as a ’mortgage promise’ which confirms that, providing the information you’ve provided is accurate, they’d be happy to lend you the money. It is this promise that estate agents will ask for to evidence that your offer to purchase a property is a credible one, so your advisor will be able to send a copy to you and your agent if required.
There are a number of benefits to getting an agreement in principle before you find a property:
- You know you have the money for the purchase in the first place
- It gives the vendors and agent confidence that your offer is credible and that obtaining the finance to by the property is viable.
- It can put you in a stronger negotiating position – All other things being equal, the vendor will be more likely to accept your offer over somebody who doesn’t have a decision in principle in place.
- An AIP will also give you a clear idea of what price range you should be looking at when shopping for a mortgage; what deposit you need; what you can afford to borrow; and what your limits are.
Decisions in principle and credit checking
There is one important thing to consider before getting an AIP – When an application is processed the subsequent credit search made by that lender can either leave what’s known as a ‘soft footprint’ or a ‘hard footprint’ on your credit file. A soft footprint may show on a credit report as an ‘enquiry’ rather than an application for credit, whereas a hard footprint shows as a “mortgage application” – It is these applications for credit that can impact your credit score. Having a larger number of hard searches in your recent credit history can lower your score and potentially your chances of being accepted for a mortgage.
Don’t expect every lender to want your business – even those with grade A 999 credit ratings. We say this because each lender has criteria you must meet or be cast aside. The opinions on what is acceptable by underwriters can vary widely for things like employment type, length of employment, contract type, affordability, deposit source, etc.
This is why it is SO important to approach the right lender from the start, and why it’s best to limit the amount of mortgage in principle agreements that you apply for. You want to know there’s a good chance of being accepted before you even apply, and by speaking to an experienced whole of market broker that genuinely knows the whole market.
Soft searches and hard searches
The difference between hard and soft credit checks:
Each lender references your credit file in a different way. Some perform ‘soft searches’ and some ‘hard searches’. Why? We don’t know! But it’s true. Soft checks register as a reference or an enquiry, but never an application for credit. When you check your own credit report online the check will show as an enquiry, and it is OK for you to monitor your own file – this will not adversely impact your credit score, and neither will initial mortgage in principle soft searches.
Hard credit checks show on the credit report that a mortgage has been applied for, and too many of these showing in a short space of time can negatively impact the credit score, because the assumption is made that the previous lenders either declined the customer or the customer is potentially higher risk of being fraudulent, trying their arm with multiple lenders until an application sticks.
At decision in principle stage, mortgage applications can either show as soft or hard depending on the lender, but when progressing to the full mortgage application, a hard search will almost always be performed.
How to get a mortgage in principle
To get a decision in principle you can either go directly to a lender or apply through a mortgage broker. Going direct to a lender only gives you access to one limited range of products so chances are you could get a better or more appropriate deal elsewhere, and that’s if you are accepted by the lender at all – if you don’t fit criteria you won’t be able to borrow, and as they cannot offer you an alternative you are usually directed to the door than to the help you need.
Remember though, being declined by one lender doesn’t mean that there isn’t another mortgage out there for you. The best mortgage brokers and advisors have a thorough understanding of the market and know the lender criteria inside out, so will likely already know which lenders are likely to accept you, as well as being able to offer you the best deals from the whole market.
Complete our enquiry form and one of the specialists can to help find the right mortgage for you.
What information might be needed
Before your advisor can apply for the actual decision in principle, they will need to complete a fact find of information to determine your exact situation on which to base the mortgage lender research. It’s not just a case of applying with the lender who has the best rate – these days lending criteria can be extremely complex and approval can depend on various factors like income, credit history, deposit type, property type, your age, etc. As well as finding the lenders to consider your application, it is also necessary to allow your advisor the right info to recommend the best products for you – for instance, if you have plans to sell the property in 3 years, it wouldn’t be prudent to recommend a 5 year fixed rate; or if you have had adverse credit in the last 2 years it would be sensible to find a lender who considers recent adverse credit – without these conversations your advisor wouldn’t have the knowledge to make the right recommendation.
Offline AIP form: If you wish to make an application for an AIP now, you can make an enquiry or if you’d prefer, you can complete the enquiry form here and email it to us at ‘enquiries (@) onlinemortgageadvisor.co.uk’.
What documents will I need for an agreement in principle?
Your advisor will also need to verify your identity, your income, and your outgoings by requesting certain documents. The purpose of this is to pre-empt what the lenders will request to ensure that the right lender is being approached from the outset – without all of the evidence it is difficult to establish the exact situation and thus source the right lender, especially when it comes to evidencing income, as your advisor will need exact figures to input on the lenders system from payslips / self-employed accounts.
So in most instances, in order to obtain an AIP the following documents will be needed:
|Proof type||Documents accepted|
|Proof of ID
(Must be valid and in date)
|Passport or drivers licence|
|Proof of address
(Must be within the last 3 months)
|Proof of income||Payslips – 3 months or 13 weeks
Self-employed accounts – last 3 years
SA302 tax returns – last 3 years
|Proof of outgoings||3 months bank statements|
|Proof of deposit||Statement from savings account
Letter from relative to confirm if from a gift.
|Credit reports (If adverse credit declared)||Experian
|New property details||Property address
Property type (flat / house etc)
No. of bedrooms and other rooms
Material of build
Does it have a garage / parking?
|Estate agent details||Contact name, address & number|
|Solicitor details||Contact name, address & number|
What do the lenders base their decision on?
Lenders will base their decision on a number of different factors. Most importantly they will be interested in your credit history, your income relative to the loan size, the amount of deposit/equity in the property, and your affordability when taking into account any existing financial commitments.
Loan to value (LTV)
Simply put, the higher the LTV the higher the risk of the lender not getting all their money back if the property were repossessed. If you are borrowing at a higher LTV then your credit history and credit score must be better than someone who has much larger deposit, you are also likely to pay a much higher rate of interest.
Loan to income (LTI)
Typically lenders either perform an affordability based model or an income multiple based model, but in essence the maximum borrowing limit sits somewhere around 5x annual salary. Some lenders are far more strict and will only lend 3x salary, some 4x. If you are borrowing on a higher LTI then the risk of you not being able to afford the loan is greater for the lender.
If you have adverse credit there are specialist lenders out there that will consider your application, depending on the severity and how recent an issue(s) it is, and the loan to value (the more deposit you have the more severe the adverse credit can be).
Employed applicants will need to evidence their annual salary + any other annual income such as bonuses, commission, overtime, car allowance etc. The lenders also consider how long you have been in your current role and with the current employer –employees that have been in a company for years are less risk than those who have just started. Anyone looking to start a new job or who has recently started, may struggle with a lot of lenders that require 6 months in the current role. There are some lenders who are happy to consider anyone who has started a new job recently, either from day 1 or even with a contract not due to start for the next 3 months, even if in an initial probationary period.
Anyone who is self-employed can find a mortgage with as little as 1 year of trading, but most lenders require 3 years history. Some will take an average of your last 3 years, others 2 years, and a small number of lenders will consider applications based purely on the most recent years figures.
Deposit source is an important factor with most lenders, as now the rules around evidencing where the money has come from are tighter than ever in order to comply with strict money laundering regulations. Anyone who has saved their own deposit will be able to use this no problems, although if the deposit is in an account overseas only a few lenders will accept this. Those self-employed taking deposit from their business accounts can do, but the accountant will need to verify withdrawal of these funds doesn’t impact the ongoing ability of the business to trade in any negative way.
Anyone receiving a gifted deposit will need to evidence the source of these funds either with the lender or the solicitor. Using gifted funds from abroad as deposit will find it more difficult to evidence, but some lenders will still consider this acceptable. Anyone gifting money who is not a direct family member will again need vetting closely, and although most lenders do not accept gifted deposits from outside the family, some do – there just needs to be a justifiable explanation for a third party wanting to gift the money.
Applications with 2 people on the mortgage jointly will have both incomes considered. With most lenders, married applicants will need to go on the mortgage in joint names, however there are some lenders who will accept sole married applicants in certain circumstances.
3 or more borrowers can feature on a group purchase or remortgage application, but most lenders will only factor in the first 2 applicants income in their affordability assessment.
An agreement in principle does not guarantee a mortgage
Although it is often referred to as a ‘mortgage promise’, getting a mortgage agreement in principle online or anywhere else, does not actually guarantee you the funds, because at this stage it is only the lenders system that had approved you – you will still need to produce the necessary documents to verify the figures you have been approved on, and also have the lenders underwriting team assess the application as a whole and sign it off. The formal mortgage offer where you can be sure the lender is happy to give you the money, doesn’t actually get issued until after the full application and the property has been approved as suitable by a local surveyor.
Doesn’t this make the decision in principle a bit pointless?
No – you will still need the lenders system to approve you in order to get the funds, and acceptance is always a good indication that the application will be approved, but good brokers know that cases need packaging and presenting to the lender in the right way, especially if there is adverse credit or other non-standard circumstances involved, and that nothing is set in stone until you get the mortgage offer, have the funds released to the solicitor, the keys and move in! You will also need the certificate of approval for the estate agent to acknowledge that your offer of purchase is viable.
Once you have the AIP, there are still a few factors that could mean a mortgage is not granted on or after the full application:
- If any of the details provided are incorrect (e.g. address history inaccurate, resulting in an incorrect initial credit score).
- If you cannot provide the documents requested (e.g. the lender asks for a business accounts from a qualified accountant to verify your income and you don’t have one).
- If anything on your credit report changes since the initial AIP was produced (payment history excellent before the application but payments missed after initial decision and before mortgage offer).
- The underwriters decline the application (e.g. they decide they are not happy with the current account conduct indicating high use of overdraft and inability to live within means).
- The property is deemed unsuitable for lending purposes (This could be either because it is no-standard construction and outside of the lenders policy; it may be an ex-local authority property and the lender you got the initial AIP with doesn’t accept this property type; it may be due to the property being down-valued from the price you have applied for; or perhaps due to some structural issues that makes the lender question its use as security).
If you’re enquiring for mortgage help via Online Mortgage Advisor it is important that all the information you provide is as accurate as possible, as this will help your broker research the market for the right lender for you, and ensure that there are no hidden surprises that may come to light down the line and cause the application to decline. Although your broker will aim to put you with the best lender possible, it is the underwriters who make the lending decisions at the end of the day, so it’s vital the broker knows the full story to be able to match you with the correct lenders from the outset.
Agreement in principle rejected?
If you’ve been refused an agreement in principle don’t give up hope. There’s a whole number of reasons as to why this may have happened, many of which will not be an issue with another lender because they are all so different in what they do and don’t accept – this is true of credit history, credit score, income, deposits, affordability, etc.
Get in touch and we will make sure you’re passed through to the most appropriate whole of market broker, with an expert knowledge of this criteria and someone who handles enquiries like yours every day.
Has your agreement in principle been referred?
Sometimes an application will come back with a message saying that it has been ‘referred’. This basically means there is something to do with the application conflicting with the lenders mortgage system, meaning that is either not quite within normal acceptable policy, or has been keyed incorrectly.
99% of the time a referred case will pass through to a front line underwriter for review, who will then make a manual decision on lending – this can usually take between 1 and 5 working days depending on the lender and their current workload.
Sometimes all that is needed is quick clarification of something minor, or perhaps more information will be required in order to reach a decision (i.e. explanation as to why a payment was missed or an overdraft exceeded etc). Other times the underwriters can still decline the application at this stage – often it is them looking for reasons to lend rather than reasons not to.
Your broker should chase this up immediately with a phonecall to the processing team to establish the reason for referral, as they should if the case is declined. There may well be a reasonable explanation that can be solved and the mortgage quickly approved, there may have been a keying error on application, there may even have been a technical fault with the mortgage system that needs addressing.
The mortgage in principle certificate
To evidence an agreement in principle, mortgage lenders will allow you to request a mortgage agreement in principle certificate. Sometimes these can show the maximum loan amount available so you know what your borrowing limits are; other times it states the loan amount applied for has been approved; and other times it simply states that you have been accepted. You can use this as proof to estate agents and vendors that you are likely to get the finance that you need to purchase the property.
First time buyers
Lending criteria can differ for first time buyers, particularly when it comes to income. All lenders will require residential borrowers to evidence affordability for the loan taken, and some impose tighter limits when it comes to personal income, demanding that first time buyers meet a minimum income threshold – circa £20-25,000 (sole or joint income) with most lenders. Lenders may also require first time buyers to have higher credit scores because they are seen as slightly higher risk than someone used to owning their own home.
Buy to let (BTL) mortgage lenders also impose tighter rules on first time buyers, where most do not accept them at all, others demand that first time buyer income must be sufficient to cover mortgage affordability as if they were moving into the property themselves, whereas existing homeowners and experienced landlords can borrow on BTL mortgages with little or no personal income.
Not all brokers are aware that first time buyers have different lending rules, so if you are looking for an AIP mortgage application and not using one of our brokers, make sure you choose a broker with a strong knowledge of lender criteria.
How long does a mortgage in principle take?
The amount of time it takes to get a mortgage decision in principle agreement depends on a number of factors, but essentially it can be an immediate decision for a lot of borrowers.
Typically the limiting factors will be first – gathering all the necessary documents for the advisor to verify income and identification etc., and second – finding the right lender for your circumstances. This can be quick and easy for straightforward applications where borrowers are employed, borrowing under 4x income, borrowing under 85% Loan to value, and clean credit. As such these AIPs can be granted within a matter of minutes of the fact find. For anyone who is considered outside of the ‘standard’, perhaps if they have adverse credit for example, the AIP can take more time to approve because it can take much longer to research the best lender.
If time is of the essence and you need a mortgage in principle fast, then make an enquiry on the page here.
If you have all the documents and information outlined above to hand, then one of the brokers we work with could have a decision in principle in place for you by the end of the day, allowing 24 hours for complex applications.
How much does a mortgage in principle cost?
Every broker is different in how they charge fees. Some charge back-end completion fees, some charge upfront fees, and some do a bit of both. Typically when you first talk to an advisor it is free of charge for them to establish what you want to do and if it’s possible – you shouldn’t pay or commit to anything at this stage. If you want to proceed with a decision in principle then some brokers will ask for administration fees upfront. Be aware of any broker that charges high (over £300) upfront fees that are non-refundable. They may not be able to get you a mortgage, so to pay them a high fee from the outset is risky. Ideally you’d find a broker who offers a refund of fees if they cannot get the mortgage agreed.
As a general guideline, you’d expect to pay anywhere from £0 to £300 upfront, and then a further fee on mortgage offer or completion, all depending on the size and complexity of the application and if you are taking insurance products with the broker or not. Of course brokers earn commission from lenders and insurers for arranging products so often this can be offset against any fees you might pay.
How long does a mortgage in principle last for?
Typically, the approval in principle mortgage lenders issue lasts between 60 and 90 days, and an online mortgage promise should be exactly the same. However, it’s important to think of the agreement as a ‘live-system’. For example, if your circumstances were to change and you missed a payment on your credit card after the initial AIP, the credit score could change and the lender may decline the application. Similarly, if nothing changes but the AIP expires, there’s usually no reason why that same lender wouldn’t re-approve you after this point – a re-submission is relatively quick and simple to process and can often be done at the click of a button.
Make an enquiry
- Do you need a quick agreement in principle?
- Is there a property you want to put an offer in on ASAP?
- Has the mortgage you had approved fallen through?
- Have you been let down by your current broker or a lender that you applied directly with?