Can You Get Multiple Agreements in Principle?
Navigate the mortgage process: Learn if you can obtain multiple Agreements in Principle and what it means for your home loan application.
What an Agreement in Principle Is
An Agreement in Principle (AIP), also known as a Decision in Principle (DIP) or Mortgage in Principle, provides a preliminary assessment of how much a lender might lend a homebuyer. This document reviews an applicant’s income, debts, and credit history, serving as an estimate of borrowing capacity. It helps individuals understand their potential budget before formally applying for a mortgage.
An AIP is not a guarantee of a mortgage offer or a legally binding commitment. It signifies that, based on initial data, the lender is prepared to consider a mortgage application. This preliminary step often involves a “soft credit check,” providing a general overview of creditworthiness without significantly impacting the applicant’s credit score.
Applying for Multiple Agreements in Principle
It is indeed possible to obtain multiple Agreements in Principle from different lenders. Many homebuyers choose to do so to compare potential offers, assess their borrowing capacity across various institutions, or simply to have several options available when they find a suitable property. The process for obtaining an AIP involves providing personal and financial details to each lender, which is then used for their initial assessment.
This allows individuals to see differing estimates of loan amounts and terms, as various lenders might have distinct criteria for assessing eligibility. Applying for multiple AIPs helps gain a broader understanding of the mortgage market and positions one as a serious buyer with verified financing potential.
Understanding the Impact of Multiple Applications
The impact of applying for multiple Agreements in Principle on a credit score primarily depends on the type of credit check performed by the lender. AIPs typically involve a “soft credit check,” which provides a general overview of a consumer’s credit history without leaving a visible mark that other lenders can easily see. Soft inquiries generally do not affect a credit score and are often used for pre-approvals or when an individual checks their own credit.
In contrast, a “hard credit check” is a more thorough review of a credit file, typically conducted during a full mortgage application. Hard inquiries can slightly lower a credit score, usually by a few points, and remain on a credit report for up to two years.
While multiple hard inquiries in a short period can raise concerns, credit scoring models often group multiple mortgage-related inquiries made within a specific timeframe as a single inquiry, recognizing that consumers shop for the best rates. Therefore, applying for multiple AIPs, if they primarily involve soft checks, should have minimal to no negative effect on a credit score. However, it is prudent to confirm with each lender whether their AIP process involves a soft or hard credit check.
Choosing and Proceeding with an Agreement in Principle
After obtaining one or more Agreements in Principle, evaluate and compare these preliminary offers. Focus on the estimated loan amount, indicated interest rates, and general terms. This comparison helps align the AIP with financial goals and property aspirations.
After selecting a preferred AIP, move towards a full mortgage application. This requires gathering documentation like proof of income, employment history, bank statements, and details of existing debts. The lender will then conduct a thorough underwriting process, including a hard credit check and property valuation, to finalize their mortgage offer.