Are you looking into taking out a loan or mortgage? If so, you've likely come across the term "mortgage in principle" or "mortgage agreement in principle." But what exactly does it mean, and why is it an important step in the loan process?
In this blog post, we'll explain what a mortgage in principle is, and why they matter. We’ll also have a look at how they can benefit you when getting a loan. Then, we will discuss how you get a mortgage in principle.
Understanding the mortgage in principle
A mortgage in principle is a written estimate or statement from a lender that shows how much money they are willing to lend you. It can be used to help you understand how much you may be able to borrow for your plans.
It's not a formal loan offer, but rather a provisional agreement based on your finances.
A mortgage in principle is based on an assessment of your financial situation. Your income, expenses, credit history and any existing debts will be looked at.
Why is it important?
Getting a mortgage in principle gives you a realistic budget to work with. For example, if you are buying a house it helps guide you towards properties within your price range. This can help you avoid wasting time on houses that are too expensive.
Knowing your borrowing limit allows you to plan your budget. For example, if you are using the loan for home renovations, you will know how much money you can spend on labour, materials etc.
By getting a mortgage in principle, you'll already have much of the required paperwork in place. This could reduce the time it takes to secure an offer.
A mortgage in principle generally provides you with peace of mind, knowing that you have a lender's initial vote of confidence in your ability to secure financing. It allows you to begin your plans with a sense of assurance and reduces the uncertainty associated with obtaining a loan.
How to get a mortgage in principle
- Choose a lender, bank or mortgage broker: Research different mortgage lenders, banks and brokers, and compare their offerings to decide where to apply. Once you have chosen, you should contact the lender, bank or broker to express your interest and ask for a mortgage in principle.
- Provide information: You will need to provide details about your income, expenses, and credit history. Be prepared to share these details honestly, as it forms the basis of your mortgage in principle.
- Submit application: Once you have provided the required information, you can submit your application for a mortgage in principle. The lender, bank or broker will then run a credit check to make sure you are eligible for a loan.
- Receive your mortgage in principle: Once approved, you will get a document from the lender outlining the amount they are willing to lend you and the terms and conditions. This is typically valid for around 60 to 90 days.
Summary
Borrowing money can feel daunting, but having a mortgage in principle can simplify things. It gives you a clear financial plan and makes the application process smoother.
Remember that a mortgage in principle is not a binding commitment, but it is a tool to help guide you with your loan. With this document in hand, you'll be well-prepared to make informed decisions to get your plans underway.
