Agreement in Principle Guide
An Agreement in Principle is often one of the first important steps when you're preparing to buy a home.
You may also hear it called a Decision in Principle (DIP) or Mortgage in Principle (MIP). Although terminology varies between lenders, these terms generally refer to an initial indication of how much a lender may be prepared to lend based on the information available at that stage.
An Agreement in Principle can help you understand your potential mortgage position before you start making offers on properties.
However, it is important to understand what an Agreement in Principle does — and what it doesn't do.
What Is an Agreement in Principle?
An Agreement in Principle, commonly shortened to AIP, is an initial assessment carried out by a mortgage lender.
You provide information about your circumstances, which may include your:
Income
Employment status
Regular financial commitments
Existing borrowing
Deposit
Address history
Credit history
Proposed mortgage requirements
The lender then applies its affordability calculations and lending criteria to determine whether it may be prepared to lend and, where applicable, the potential borrowing amount.
An AIP can therefore provide a useful indication of your mortgage position before you have found a property.
It is not a formal mortgage offer.
AIP, DIP and MIP – What's the Difference?
You may come across several different terms during your property search:
Agreement in Principle – AIP
Decision in Principle – DIP
Mortgage in Principle – MIP
Different lenders and organisations use different terminology.
For most buyers, the important point isn't the name. It is understanding that this is an initial lending assessment rather than final mortgage approval.
A formal mortgage offer normally comes later, after a full mortgage application and the lender's assessment of both the applicants and the property.
When Should I Get an Agreement in Principle?
It can be useful to obtain an Agreement in Principle before you start seriously making offers on properties.
Ideally, you should first understand your overall mortgage position and establish a realistic budget.
This means you can begin your property search with a clearer understanding of what you may be able to borrow and the deposit you are likely to need.
An AIP can also demonstrate to an estate agent that you've started investigating your mortgage arrangements.
Do I Need to Find a Property First?
No.
An Agreement in Principle can normally be obtained before you've found the property you want to buy.
At this stage, the focus is primarily on you and your financial circumstances rather than a particular property.
Once you've found a property and your offer has been accepted, your mortgage adviser can review the available options based on the actual purchase price, deposit, property and your circumstances at that time.
How Much Can I Borrow?
There isn't one universal calculation used by every mortgage lender.
You may hear general statements suggesting that lenders simply multiply your salary by a particular number, but mortgage affordability is more complicated than that.
Lenders can consider factors such as:
Basic income
Overtime
Bonuses
Commission
Self-employed income
Pension income
Certain benefits or other income
Personal loans
Credit card balances
Car finance
Student loans
Dependants
Other regular financial commitments
Mortgage term
Deposit and loan-to-value
Different lenders have different affordability models and lending criteria.
This means one lender may be prepared to lend a different amount from another lender using the same applicant information.
An AIP from one lender therefore shouldn't automatically be treated as the maximum mortgage available across the entire market.
Does an Agreement in Principle Guarantee My Mortgage?
No.
This is one of the most important things to understand.
An Agreement in Principle is not a guarantee that you'll receive a mortgage.
The lender has not necessarily completed its full assessment of your application at this stage.
When you proceed to a full mortgage application, the lender may carry out further checks and request evidence supporting the information provided.
The lender will also need to assess the property you want to purchase.
Final lending remains subject to factors including affordability, eligibility, underwriting, satisfactory evidence and the lender being satisfied with the property being offered as security.
Does an AIP Affect My Credit Score?
This depends on the lender.
Some lenders may use a soft credit search during the Agreement in Principle stage, while others may carry out a hard credit search.
A soft search is generally not visible to other lenders in the same way as a hard search, although you may still be able to see it on your own credit information.
A hard credit search creates a record that other lenders may be able to see.
Before proceeding with an AIP, it is useful to understand what type of credit search the particular lender will carry out.
Your mortgage adviser can explain the process for the lender being considered.
Should I Get Several Agreements in Principle?
Obtaining numerous AIPs simply to see which lender gives the largest number isn't necessarily helpful.
Each lender has different criteria, affordability calculations and credit-search procedures.
A high borrowing figure also doesn't automatically mean that lender will offer the most appropriate mortgage once you've found a property.
The objective should be to establish a realistic mortgage position based on your circumstances, rather than collecting multiple AIPs unnecessarily.
What Information Needs to Be Accurate?
All of it.
Even though an AIP isn't the full mortgage application, the information supplied should be accurate.
This includes your:
Income
Employment
Address history
Existing debts
Monthly commitments
Dependants
Deposit
Credit history
Don't deliberately leave something out because you think it could affect the lender's decision.
When the full application is submitted, the lender may verify the information using documents, credit-reference information and other checks.
Differences between the information originally supplied and the evidence subsequently provided could affect the application.
What Documents Should I Prepare?
You may not need to submit every supporting document to obtain an AIP, but preparing your paperwork beforehand can help ensure that the information being used is accurate.
Documents commonly required during the wider mortgage process can include:
Passport or photographic identification
Proof of address where required
Recent bank statements
Recent payslips
Evidence of your deposit
Accounts and tax documents if you're self-employed
Details of existing credit commitments
For a more comprehensive list, see our Documents Needed for a Mortgage guide.
What Happens If My AIP Is Declined?
A declined Agreement in Principle doesn't automatically mean that you cannot obtain a mortgage.
There can be many reasons why a particular lender doesn't proceed.
For example, the issue could relate to:
Affordability
Credit history
Address history
Employment circumstances
Income structure
Existing financial commitments
The lender's individual eligibility criteria
Different lenders have different criteria.
Rather than immediately submitting applications to numerous other lenders, it can be sensible to understand why the first lender may not have been suitable.
This is particularly important where credit searches are involved.
What If I Have Bad Credit?
Previous credit problems don't necessarily mean that a mortgage is impossible, but they can affect which lenders and products may be available.
The details matter.
A lender may consider factors such as the type of credit issue, when it occurred, its value, whether it has been satisfied and your more recent credit conduct.
If you know that you've had missed payments, defaults, County Court Judgments or other credit problems, tell your mortgage adviser before an AIP is attempted.
It can also be useful to review your credit information beforehand.
Get a full credit report:
Checkmyfile Full Credit Report
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What Happens If My Circumstances Change After the AIP?
Tell your mortgage adviser.
An Agreement in Principle is based on your circumstances at a particular point in time.
Changes could include:
Starting a new job
Changing your working hours
A change in income
Taking new borrowing
Increasing credit card balances
Arranging car finance
Changes to your deposit
Changes to your household circumstances
A previous AIP shouldn't be relied upon without considering whether anything material has changed.
Can I Take Out New Credit After Getting an AIP?
Getting an AIP doesn't mean your financial position has been permanently approved.
Try to keep your finances stable throughout the home-buying process.
Taking a personal loan, financing a car, opening new credit facilities or increasing existing borrowing could affect affordability or the lender's assessment.
This can be particularly important between receiving an AIP and completing your property purchase.
If you're considering a significant new financial commitment during this period, discuss it with your mortgage adviser first.
How Long Does an Agreement in Principle Last?
The validity period varies between lenders.
An AIP isn't something you should assume will remain valid indefinitely.
If it expires before you've found a property, your circumstances and the lender's criteria may need to be reviewed before another AIP is obtained.
Mortgage products and lending criteria can also change during your property search.
For this reason, an AIP should be treated as a snapshot of your mortgage position at that particular time.
I've Found a Property – What Happens Next?
Once you've found a property and your offer has been accepted, tell your mortgage adviser.
The next stage isn't simply turning the AIP into a mortgage automatically.
Your adviser can review your circumstances again alongside the actual:
Purchase price
Deposit
Required mortgage amount
Loan-to-value
Property details
Mortgage products available at that time
An appropriate mortgage can then be considered before proceeding to the full application.
The lender will assess the application and will also need to be satisfied with the property.
If everything is satisfactory, the process can eventually progress towards a formal mortgage offer.
AIP vs Mortgage Offer
The distinction is important:
Agreement in Principle
An initial indication of potential lending based on the information and checks carried out at that stage.
Mortgage Offer
A formal offer issued following the lender's fuller assessment of the mortgage application and property, subject to the terms and conditions of that offer.
Having an AIP is therefore an early milestone.
Receiving the formal mortgage offer is a much later stage of the buying process.
A Sensible First Step – Not the Finish Line
An Agreement in Principle can be extremely useful.
It can help establish a realistic property budget, give you more confidence when viewing homes and demonstrate that you've started investigating your mortgage position.
But it should always be understood for what it is:
an initial indication rather than a mortgage guarantee.
If you're preparing to buy your first home, you can also read our First-Time Buyer Guide, follow our First-Time Buyer Checklist, and prepare your paperwork using our Documents Needed for a Mortgage guide.
Cambs Ely Mortgages helps first-time buyers and other mortgage applicants in Ely, Cambridge, Cambridgeshire, East Anglia and across England understand their mortgage options and navigate the application process.
Building Blocks for a Brighter Future.
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Important Information
This guide is for general information and educational purposes and shouldn't be treated as personalised mortgage or financial advice.
An Agreement in Principle isn't a guarantee of lending. Mortgage applications are subject to lender criteria, affordability, credit assessment, underwriting and satisfactory property assessment.
Your home may be repossessed if you do not keep up repayments on your mortgage.