What is a Mortgage Agreement in Principle?
If you’re thinking about buying a home, one of the first mortgage terms you’re likely to come across is an Agreement in Principle, often shortened to an AIP.
You might also hear it called a Decision in Principle (DIP) or Mortgage in Principle (MIP).
But what actually is one? Does it mean you’ve been approved for a mortgage? Does it affect your credit score? And should you get one before you start viewing properties?
We’ve put together this straightforward guide to explain how it works — without the mortgage jargon.
🎥 Prefer to watch?
Watch our full Mortgage Agreement in Principle video on YouTube.
Mark from Mewstone Mortgage Advice explains Agreements in Principle, why they’re useful and what you should know before you start seriously house hunting.
Agreement in Principle (AIP): The Basics
An Agreement in Principle is an initial indication from a mortgage lender of how much they may potentially be prepared to lend you, based on the information you’ve provided and their lending criteria at that time.
The lender may consider things such as:
• Your income and employment
• Your regular financial commitments
• Loans, credit cards and other borrowing
• Your deposit
• Your credit history
• Your personal circumstances
Depending on the lender and the process being used, a credit search may also be carried out.
An AIP can therefore be a really useful first step in understanding what your mortgage options could look like.
Does an Agreement in Principle guarantee you’ll get a mortgage?
No — and this is really important.
An Agreement in Principle is not the same as a formal mortgage offer.
When you make a full mortgage application, the lender will normally carry out further checks. This can include verifying your income and supporting documents, carrying out a more detailed assessment of your circumstances and assessing the property you’re purchasing.
Things can therefore change between obtaining an AIP and receiving a formal mortgage offer.
Why get an AIP before you start house hunting?
We generally think it’s sensible to understand your mortgage position before you fall in love with a property.
It’s very easy to start scrolling through Rightmove, book some viewings and mentally move yourself into a house before establishing whether the numbers actually work!
Getting mortgage-ready first can help you understand:
🏠 How much you could potentially borrow
Different lenders calculate affordability differently. The amount one lender may be prepared to consider can sometimes be very different from another.
💷 How much deposit you may need
There are mortgage options available with relatively small deposits and, subject to eligibility and criteria, even some options that don’t require a traditional deposit.
But the mortgage requiring the smallest deposit isn’t necessarily the mortgage that provides the greatest borrowing capacity or is most suitable for you.
💳 How your existing commitments could affect you
Loans, credit cards, car finance, childcare costs, Buy Now Pay Later commitments and other expenditure can potentially affect mortgage affordability.
Finding out about an issue before you’ve offered on a property gives you much more opportunity to understand your options.
Does an Agreement in Principle affect your credit score?
This depends on the lender and the type of credit search they carry out.
Some lenders can use a soft credit search at the Agreement in Principle stage, while others may carry out a hard search at a particular point in their process.
This is another reason why it can be useful to understand which lender you’re approaching rather than unnecessarily making multiple applications.
How long does an Agreement in Principle last?
This varies between lenders. An AIP will normally only be valid for a specified period.
If it expires before you find a property, it may be possible to obtain another one, subject to your circumstances and the lender’s criteria at that time.
It’s also important to tell your mortgage adviser if anything changes — particularly your income, employment, debts, deposit or other financial commitments.
What happens once you’ve found a property?
Once you’ve found a property, had an offer accepted and you’re ready to proceed, the next stage is normally the full mortgage application.
This is where the lender carries out a more detailed assessment of both you as the borrower and the property being used as security for the mortgage.
If everything is satisfactory, the lender can then issue the formal mortgage offer.
A typical journey might look something like this:
Mortgage conversation → Agreement in Principle → Find a property → Full mortgage application → Mortgage offer → Completion 🏠
So, do you need an Agreement in Principle?
An AIP isn’t a guarantee that you’ll ultimately receive a mortgage, but it can be an extremely useful step in understanding your position before you start seriously looking at properties.
Our advice is simple:
Don’t start with Rightmove. Start with your numbers.
Getting mortgage-ready early can give you a much clearer understanding of what you could potentially borrow, how much deposit you may need and which lenders could potentially suit your circumstances.
Thinking about buying a home?
At Mewstone Mortgage Advice, we provide whole-of-market mortgage advice and help first-time buyers, home movers and existing homeowners understand their mortgage options.
We’re based in Plymouth and help clients across Plymouth, the South Hams and throughout the UK.
If you’re thinking about buying and would like to understand what your own numbers could look like, get in touch with the Mewstone team and we’ll be happy to help.
For more independent information about the home-buying process, you can also visit MoneyHelper’s mortgage guidance.
https://www.moneyhelper.org.uk/en/homes/buying-a-home/first-time-buyer-money-tips
Your home may be repossessed if you do not keep up repayments on your mortgage.