Agreement in Principle Explained by ESPC
In our new series, we break down the terminology of the property industry to help you feel confident and in control of your home-buying journey.
Key Takeaways
- An Agreement in Principle (sometimes called a Decision in Principle or Mortgage in Principle) is a document from a lender that states how much they are willing to lend you.
- The Agreement in Principle helps you understand your budget and lets you make offers knowing what you can afford.
- You apply for one through your chosen lender (often online) or via a mortgage adviser, and they check your credit, income, and outgoings.
- It is not a guarantee of a mortgage offer; the final offer depends on things like the property valuation and more detailed checks once your offer is accepted.
- The terms of an Agreement in Principle may change if your personal circumstances change (for example, via job change, change in deposit, or buying with someone else).
What is an agreement in principle?
An ‘agreement in principle’ (sometimes referred to as a ‘decision in principle’ or a ‘mortgage in principle’) is a document from your mortgage lender, outlining how much the lender is prepared to lend you for your mortgage.
This will help you to define your budget and make offers on properties, as you’ll know how much you can afford to spend.
How do I get an agreement in principle?
You can apply for an agreement in principle through your chosen mortgage lender; many have an application process available online.
A mortgage adviser can also help you with this and can advise you on the most suitable lender to apply to. Contact ESPC Mortgages for advice.
When you apply, the lender will check your credit file to establish whether you’re eligible for a mortgage, and if you are deemed a ‘safe’ prospect for a mortgage.
You’ll need to provide personal information, like your name, date of birth, recent address history and an overview of your income and outgoings.
Do I need to get an agreement in principle?
You do not need to have an agreement in principle to start house-hunting, but selling estate agents might want to confirm that you have one, as it shows that you are a serious buyer who can, in theory, afford to buy the home they are marketing.
An agreement in principle also helps you to understand how much you can afford to spend on a property. If you have had credit problems in the past, or if you are a first-time buyer and aren’t sure how much of a mortgage is available to you, an agreement in principle can provide added reassurance to help you begin your property search.
Things to know about agreements in principle
It is important to remember that an agreement in principle is not a formal mortgage offer, nor is it a guarantee that you will receive a formal mortgage offer. You will only receive a formal mortgage offer after you have had an offer accepted on a property, when your lender will require a satisfactory property valuation and will then delve deeper into your credit history, earnings and expenditure.
The agreement in principle may be subject to change if your personal circumstances alter in any way, i.e., you change jobs, you decide to buy with a partner or friend, or if a larger deposit becomes available to you.
