If you`re considering buying a home, you might have heard about a mortgage agreement in principle (AIP), also known as a mortgage in principle or decision in principle. It`s a statement from a lender that indicates how much money they would be willing to lend you for a mortgage based on some preliminary checks. Having an AIP in hand can be incredibly useful as it demonstrates to sellers that you`re a serious buyer with a good chance of securing a mortgage. Here`s what you need to know.
1. Your credit report
One of the first things a lender will look at when assessing your mortgage application is your credit report. It`s a detailed record of your borrowing history, including any late payments, defaults, or court judgments against you. Make sure to review your report before applying, as any errors or discrepancies could harm your chances of getting an AIP.
2. Proof of income and employment
Lenders want to know you can afford to repay your mortgage. That`s why they`ll ask for proof of your income and employment. This could include payslips, bank statements, or self-employment accounts. If you`re planning to rely on bonuses, commission, or overtime to boost your income, be prepared to provide evidence of those earnings.
3. Details of your outgoings
Lenders will also want to know about your regular outgoings, such as credit card repayments, utility bills, and other loans. Be honest about your expenses, as lenders will use this information to calculate your affordability and determine how much they`re willing to lend you.
4. Proof of identity and address
As with any financial application, you`ll need to provide proof of your identity and address. This could include a passport, driving license, or utility bill. Make sure your documents are up-to-date and match the information on your application.
5. Your deposit size
The size of your deposit will have a significant impact on the amount you can borrow and the interest rates available to you. Typically, you`ll need to save at least 5% of the property`s value as a deposit, but a larger deposit could help you secure a better deal.
6. A mortgage advisor
You can apply for an AIP directly with a lender, but it`s often beneficial to use a mortgage advisor. They can help you navigate the application process, compare deals from different lenders, and answer any questions you have.
Applying for a mortgage agreement in principle can be a straightforward process as long as you`re prepared and have all the necessary documentation. Once you have an AIP, you can start looking for your dream home with confidence, knowing that you`re in a strong position to secure a mortgage.