Can you make an offer without a mortgage in principle?
This is one of the most exciting times of your life. You’re going to buy a home of your own, and you’re thrilled. But it’s a complicated process with a whole lot of essential boxes to tick, many of which won’t be familiar to you. It is important to get everything right the first time.
This simple guide reveals everything you need to know about the need for a mortgage in principle. The all-important question is this: can you make an offer without a mortgage in principle? Let’s take a look. By the end of this article you’ll know exactly what you’re doing.
What is an agreement in principle?
A mortgage in principle, also known as an agreement in principle, decision in principle or mortgage promise, is simply a statement from your lender saying they will lend you a certain amount of money ‘on principle’ – in other words, as long as your circumstances don’t change and nothing happens to change their mind. If it looks like you have bigger outgoings than you thought when you applied, for example, they might withdraw or change their offer.
When you apply for a mortgage in principle the lender will check your credit rating to make sure you’re eligible for a loan. They’ll want to verify your identity, salary, and outgoings by requesting a range of documents from you. If all is well they can provide an agreement in principle. Once you have one, it lasts between 60 and 90 days depending on the lender. If it runs out and your circumstances haven’t changed, you should be able to get your original offer in principle renewed.
An agreement in principle is not a mortgage offer, nor is it official confirmation you’ve been given a mortgage. It’s basically a short cut. You will have to go through the full mortgage application process to seal the deal and get your loan.
Sometimes your paperwork might show the maximum loan amount you can borrow. Other times it confirms the loan amount has been approved, and sometimes it just says you’ve been accepted in principle for a loan.
Why obtain a mortgage in principle?
Do you need a mortgage in principle, or can you look for a home of your own without it? In short, you use it to prove to estate agents and sellers that you’re likely to get the money you need to buy. You don’t have to arrange a mortgage agreement in principle. It isn’t a legal requirement. But it can be helpful when you find a place, fall in love with it, and need to move fast to secure it before someone else does.
If you want a mortgage, it makes sense to get an agreement in principle because it confirms, early on in the process, the amount you can probably borrow. This means you can refine your search for the perfect home. Without an agreement up front it’s guesswork. You might find a place you love but not be able to get a loan for it. You might decide to forget about a property you’d love to buy because you assume it’s more than you can afford – but you actually can afford it. An agreement in principle also means you can move faster when an offer is accepted, simply because your mortgage offer is already part-way there.
It’s also important to know that not having a mortgage informally agreed when you make an offer can leave you in a bad position. If someone else already has a loan lined up and you don’t, the more credible buyer – the one who’s done the work up front, is probably the buyer whose offer the owner will accept.
Securing a mortgage in principle
A mortgage in principle is usually free, but check first in case there’s a charge. Your mortgage broker or lender will need some simple personal details from you, plus your income and expenditure. They might or might not need to see supporting documents like proof of income, but it’s wise to have it all handy just in case. For many people the process takes a matter of minutes once the lender or broker has the facts in front of them.
What information is required for a mortgage in principle agreement? Your salary, current debts,
deposit amount, deposit source, property type, your age, and maybe how you’re employed – either PAYE or self-employed. As a rule, employed people are seen as a better risk than the self-employed.
Your credit history will be checked, with your permission. Most lenders use a soft credit check, not recorded on your credit score, but if they run a hard check it’ll show on your record. This can affect your credit rating temporarily, so again ask first so you know what’s what. If it turns out they need more information, they should get back to you within 24 hours.
Wrapping it up
Now you know exactly what a mortgage in principle or MIP involves. As long as you have the right paperwork, be honest about your financial situation and provide all the details, you should be able to secure a loan agreement. Then you can go search for the perfect home with confidence, knowing a lot of the hard work has already been done. Can an offer be made without a mortgage in principle? Yes, but it isn’t a good idea. You’re in a much better home buying position when you have one.