Mortgage in principle

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Mortgage in principle

A mortgage in principle tells you how much a potential lender could let you borrow. It can give you peace of mind and even help you beat other buyers to a sale. But it’s not a guarantee.

You can get a mortgage in principle before putting in an official application for your mortgage. You might also see it called a ‘decision in principle’ or ‘agreement in principle’. It tells you how much you’re likely to be able to borrow in theory (that’s the ‘in principle’ bit), based on the information you’ve given the lender so far.

Why it’s not a done deal

But it’s not legally binding. There’s no guarantee they’ll actually lend you that much, or anything at all for that matter. Once you go on to put in the full application, they’ll do much more detailed calculations and checks. And the lender might then decide you can’t afford as much as they thought, at first glance.

Also, a lender might change the way they decide on mortgages between the time you get your mortgage in principle and apply for your mortgage in full. But that hardly ever happens.

In some cases, how much you can borrow can even change because of the type of property you want to buy. For example, some lenders want a bigger deposit for properties of ‘non-standard construction’ (like timber frame houses or concrete prefabs).

Why it’s still (mostly) a good thing

Mostly, the pros of getting a mortgage in principle outweigh the cons. It gives you peace of mind about how much you can afford – and it gives estate agents and sellers confidence that you’ll get the offer you need. It could even give you the edge over other buyers, when the seller is weighing up their offers.

But one potential downside to keep in mind it that when you apply for a mortgage in principle, it’ll leave a ‘footprint’ on your credit record. While that isn’t usually a problem, you should think twice before applying for lots of mortgages in principle from lots of different providers. That’s because having a lot of credit checks in a short space of time can actually hurt your credit rating.

In a nutshell

You can get a mortgage in principle before you apply for a mortgage in full. It tells you how much a lender is likely to let you borrow. But it’s not based on all the information you’d give in a full application. So there’s no guarantee you’ll get that much (or anything at all) when you actually apply.

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