Does an Agreement in Principle Affect Credit Score? What First-Time Buyers Need to Know
What is an Agreement in Principle?
If you’re a first-time buyer you may have encountered the term “agreement in principle” (AIP), also called a mortgage in principle, mortgage promise, or decision in principle, during your mortgage search. But what is an AIP and why does it matter to you?
In short, an agreement in principle is a statement from a lender saying how much money you can borrow from a lender based on an initial assessment of your credit profile, financial circumstances, including income and other details. It determines if you meet the lender’s criteria to receive a certain amount of loans and can afford monthly repayments.
How much a lender will lend to you depends on the finance assessment, which looks at details like your income, your deposit, and your outgoings. This is done to help determine the monthly payments you can afford and proves to estate agents that you can afford the property that you are offering on. If a decision in principle expires, usually after 60-90 days, it can be renewed.
Obtaining a mortgage agreement in principle is good for both buyers and sellers as it shows you’re a serious buyer with a good chance of getting the mortgage you need. A lender will often allow you to apply for your mortgage in principle online, helping to streamline the process. While it is not legally binding and doesn’t guarantee a mortgage offer, a mortgage in principle is a good first step in determining your ability to afford mortgage repayments.
Why an Agreement in Principle is Important
While it does not guarantee you can get a mortgage from your lender, an AIP certificate is a game-changer for new buyers trying to get a mortgage. Here’s why:
Show Intent
Having an agreement in principle means that, to sellers and estate agents, you are a committed buyer with your finances in order, which makes your offer more attractive. Usually, a seller or estate agent will prefer buyers who are committed. An agreement in principle gives a clear picture of how much a lender may offer a buyer.
Know Your Budget
With an agreement in principle, you have a clearer idea of how much you could borrow from a mortgage lender based on your income and other factors. This helps you focus your property search on homes within your budget and save time and effort with your full mortgage application.
Speed Up the Process
When you find your dream home, having an agreement in principle certificate can speed up the mortgage application process. Once you have your agreement in principle, you are ready to proceed to your full mortgage application once you have an offer accepted. Your lender has already done an initial assessment of your finances showing what you can borrow, so getting your offer accepted might be quicker.
Who Offers an Agreement in Principle?
Here are the three main providers:
- Banks
Banks usually offer a decision in principle as part of their mortgage services. They have a range of products for mortgages and each one has its criteria to determine how much they will offer lend to mortgage seekers in a decision in principle. Most banks offer online decision in principle applications. - Building Societies
Building societies are another option for a mortgage in principle. They offer competitive rates and personal service. - Mortgage Brokers
Mortgage brokers like Eden Hawk Financial Solutions across the mortgage market and can help you find the most suitable mortgage for the type of property you wish to buy. They are easily accessed online and are knowledgeable about local markets and criteria for your decision in principle.
Protecting Your Credit Rating: Hard vs Soft Checks
A big question for first-time homebuyers looking at mortgages is, “Does an agreement in principle affect your credit score?” The answer depends on the type of credit check the lender does before issuing your mortgage in principle.
Soft Credit Check
A soft credit check, used for pre-approvals and initial inquiries, provides an idea of your credit history but doesn’t affect your credit score or leave a mark on your credit report. It helps estimate potential borrowing amounts when you apply for a mortgage. Make sure you ask your lender if they use soft checks for their mortgage in principle process.
Hard Credit Check
A hard check, performed when a lender conducts detailed checks of your credit report, is recorded by credit reference agencies and can affect your credit score. Multiple hard checks within a short period can signal to lenders that you are applying for a lot of credit, which may lower your credit score and affect your credit history. To avoid negative consequences, it is advisable to limit the number of hard checks on your credit report.
Eden Hawk’s Approach
At Eden Hawk Financial Solutions we know how important it is to protect your credit score, especially during the mortgage application process. We work with lenders across the mortgage market and prioritise lenders that do soft checks over other lenders when helping our clients get a mortgage in principle.
To limit the impact on your credit score always ask potential lenders if they do soft or hard checks for mortgage in principle. Choose lenders that do soft checks whenever possible and consider finding a different lender if soft checks are unavailable. Anyone who wants to get a mortgage should also review their credit report regularly, ensuring there is no inaccurate information that may harm their credit history.
How Eden Hawk Financial Solutions Can Help
Finding a mortgage for your ideal property can be overwhelming. Eden Hawk Financial Solutions offers a personal approach to help you through your full mortgage application, including obtaining your mortgage in principle.
Expert Advice
Our mortgage advisors will tailor advice to your circumstances and goals. We’ll guide you through the whole mortgage process so you can make informed decisions.
Multiple Options
We have access to multiple mortgage products from multiple lenders. So you have more chance of finding a mortgage that suits you, your desired property and your budget. Eden Hawk Financial Solutions has access to exclusive products not available on the high street, only available through the Quilter Financial Planning network.
Conclusion
First-time buyers need to know if a decision in principle affects credit scores. By choosing lenders that do soft credit checks and working with experienced advisors like Eden Hawk Financial Solutions you can protect your credit rating and secure a suitable mortgage deal by applying for your decision in principle today.