How Long Is a Mortgage Agreement in Principle Valid For?

A mortgage Agreement in Principle (AIP), also known as a Decision in Principle (DIP) or Mortgage in Principle, provides an initial assessment from a lender regarding the amount they might lend for a home. It serves as a preliminary, non-binding indication of borrowing capacity based on a review of an individual’s financial information. This document helps prospective homebuyers understand their potential budget before committing to a full mortgage application. An AIP is not a formal mortgage offer and does not guarantee mortgage approval.

Understanding Agreement in Principle Validity

The validity period for a mortgage Agreement in Principle ranges from 30 to 90 days, though this can vary among lenders. Lenders set these periods because applicant financial circumstances, lending criteria, and market conditions (including interest rates) can all change, impacting their initial assessment.

Significant changes in an applicant’s financial situation can influence an AIP’s validity or necessitate a new one. For instance, a change in employment, a decrease in income, or an increase in existing debts can alter the lender’s view of affordability. A drop in credit score due to missed payments or new accounts could also affect the AIP’s relevance. If circumstances change, it is advisable to update financial information with the lender to ensure the AIP remains accurate.

How to Obtain an Agreement in Principle

To obtain a mortgage Agreement in Principle, individuals provide personal and financial details like full names, addresses for the past three years, dates of birth, and income information (e.g., payslips for employed, tax returns for self-employed). Applicants also disclose regular expenditures, existing debts (e.g., loans, credit cards), and savings or deposits.

Lenders perform a ‘soft’ credit check as part of the AIP application, assessing creditworthiness without impacting the applicant’s credit score. This preliminary check helps determine eligibility and the potential borrowing amount. Individuals can apply for an AIP directly through banks or building societies, often via online forms, over the phone, or in person. Mortgage brokers also facilitate this process, guiding clients and submitting applications. The process is quick, with many online applications providing an instant decision within minutes.

Using and Renewing Your Agreement in Principle

Once an Agreement in Principle is obtained, it serves as a useful tool in the home-buying process. Homebuyers can present their AIP to real estate agents when viewing properties, demonstrating financial readiness and seriousness as a buyer. This document can also strengthen an offer made on a home, as it indicates a preliminary commitment from a lender. While not legally binding, an AIP provides confidence to sellers that an individual is likely to secure the necessary financing.

Should an AIP expire before a property is found or a full mortgage application is submitted, it is possible to renew it. Renewing an AIP typically involves updating financial information with the lender to ensure accuracy. While a straightforward renewal may be possible if circumstances remain unchanged, significant changes in an applicant’s income, employment, debt, or credit score may necessitate a new application. Lenders may also adjust their criteria or interest rates, which could affect the terms of a renewed AIP.