A mortgage agreement in principle is a document to prove you have a mortgage in place. It is something we obtain for all our clients and almost all lenders offer them. It proves that you are credit-worthy because for the agreement certificate to be issued you must pass the lender’s credit score.
A mortgage agreement in principle offers no guarantee that you will get a mortgage as all of your application will need further background checks (such as evidence of income) and a satisfactory valuation of the property itself. However, we think it’s a good idea to get one done by the earliest you can for the following reasons:
1. Negotiating power.
2. Getting prepared in time.
3. Knowing your limits.
When you are ready to make an offer on a new home most estate agents will undertake due diligence and ask you to produce evidence that you have funds available to complete the purchase. This will take the form of bank statements and also an agreement in principle certificate that we can provide for you.
Once you have given them sufficient documentation the estate agent will then normally stop marketing the property and put a “sold” or “sale agreed” board outside the property to let other people know it is off the market.
If you already have a mortgage agreed before you make an offer, you are making yourself appear as an attractive proposition as this proves you are not making an offer on a “whim”, you’ve thought about how you’re going to fund the purchase and have done something about it. This might persuade a seller to accept an offer you put forward on their property underneath the asking price.
When it comes to buying a house some clients have always “put the cart before the horse”, that is to say, they go full steam ahead and make an offer on a property without first checking that they are actually in a secure financial position to proceed. This can lead to disappointment if the mortgage application fails because by that time they have really got their heart set on their new family home.
Furthermore, the matter of your mortgage getting refused isn’t always down to the offer you put in. It can sometimes be something else. For example, there may be a niggling issue on your credit report. Perhaps a disputed mobile phone bill that can be easily rectified. Maybe you thought you were on the Voter’s roll and you’re not. In any case that can be sorted out given a few weeks.
Or maybe you can’t get a mortgage at all… if that is the case it’s better that you know now rather than mess people about. Though we may be able to help if you contact us. We’ll be able to tell you what you need to do to improve your credit-worthiness for the future.
So you know you’ve got a good credit rating because you’ve never been turned down for credit. In any case you’re registered on the Voter’s roll and you’ve always made your credit card payments on time.
You could approach 10 different lenders these days and get 10 different maximum mortgage amounts! They all calculate affordability in their own unique ways. If you’re Self Employed it really is a minefield: some lenders take your net profit, others your salary and dividends. Some use your latest year, others an average over 3 years.
Knowing your borrowing limits is important as then you know for sure what your price range is. Our team may be able to advise you of the maximum mortgage available to you. Even more importantly, together we’ll work out how much you can afford to pay back each month.