What is a Mortgage Agreement in Principle?
The Value of an Agreement in Principle
How having your mortgage agreed at the outset can help you negotiate on an asking price
A Mortgage Agreement in Principle is essentially a document to prove you have a mortgage in place. It is something I obtain for all my clients and almost all Lenders offer them. It proves that you are credit-worthy because for the Agreement certificate to be issued you must pass the Lender’s credit score.
A Mortgage Agreement in Principle is not a guarantee that you will definitely get a mortgage as your full application will require further background checks (such as evidence of income) and a satisfactory valuation of the property itself. However I think it’s a good idea to get one done at the earliest opportunity for the following reasons:
1. Negotiating Power
2. Avoid Disappointment
3. Knowing your Limits
Negotiating Power with a Mortgage Agreement in Principle
When you are ready to make an offer on a new home most Estate Agents will undertake due diligence and ask you to produce evidence that you have funds available to complete the purchase. This will take the form of bank statements and also an Agreement in Principle certificate that I can provide for you. Once you have provided them with all this documentation the Estate Agent will then normally stop marketing the property and put a “Sold” or “Sale Agreed” board up a the property.
If you already have a Mortgage agreed before you make an offer you are making yourself appear as an attractive proposition as this proves you are not making an offer on a “whim”, you’ve thought about how you’re going to fund the purchase and done something about it. This might persuade a seller to accept an offer you put forward on their property underneath the asking price.
Avoid Disappointment with a Mortgage Agreement in Principle
When it comes to buying a house some clients have always “put the cart before the horse”, that is to say they go full steam ahead and make an offer on a property without
first checking that they are actually in a financial position to proceed. This can lead to terrible disappointment if the mortgage application fails because by that time they have really got their heart set on their new family home. This disappointment can be avoided by contacting me at an early stage because sometimes there are things that are causing a mortgage to decline that can be overcome given a little time.
For example, there may be a niggling issue on your credit report, perhaps a disputed mobile phone bill which can be easily rectified. Maybe you thought you were on the Voter’s roll and you’re not – once again that can be sorted out given a few weeks.
Or maybe you can’t get a mortgage at all! But if that’s the case it’s better that you know now rather than mess people about and I’ll be able to tell you what you need to do to improve your credit-worthiness for the future.
Knowing your Limits with a Mortgage Agreement in Principle
Ok, so you know you’ve got a good credit rating because you’ve never been turned down for credit, you’re registered on the Voter’s roll and you’ve always made your credit card payments on time – so what can go wrong?!
Well, you could approach 10 different Lenders these days and get 10 different maximum mortgage amounts! They all calculate affordability in their own unique ways. If you’re self-employed it really is a minefield: some Lenders take your net profit, others your salary and divided. Some use your latest year, others an average over 3 years.
Still think it’s simple?!
Knowing your borrowing limits is important as then you know for sure what your price range is. I’ll be able to advise you of the maximum mortgage available to you and, even more importantly, together we’ll work out how much you can afford to pay back each month.
Please contact me for a free mortgage consultation.
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Malcolm Davidson – Mortgage Broker
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