The Untold Story of an AIP
Chances are that if you’re in the market for a property you will have heard someone mention an AIP, or “agreement in principle.”
AIP is sometimes referred to as a “decision in principle” or a “mortgage in principle,” but they’re all the same thing and can all be referred to as *AIP.
What is an AIP?
An AIP is a lender certificate verifying your plan to apply for a mortgage Once the lender has examined your file, they prepare a document stating how much they are willing to lend - in principle. Potential borrowers are usually able to get an AIP from their prospective lender within 24 hours of submitting their information.
Reasons borrowers should consider an AIP
AIPs exist to give you a realistic idea of how much money you’re eligible to borrow before you purchase a property. The AIP accounts for your personal circumstances and the mortgage market at that time of application.
Having an AIP enables you to move faster through the property-buying process which is especially important if you’re in a chain of interested purchasers. If you hold up the chain waiting for confirmation of a loan, you could run the risk of losing your property.
An AIP could also make you a more attractive buyer. For a seller, a buyer with an AIP is a more secure prospect - they’re less likely to pull out because they can’t obtain a mortgage.Having the security of an AIP could set you apart from your competition.
Although it’s a good indication of a willingness to lend and the size of the mortgage you can get, an AIP is not about guarantees. Obtaining an AIP requires a the submission of a significant quantity of information, and your lender is unlikely to look over it all. Once you make your full mortgage application they will look more closely at your situation, which could lead them to a different decision.
How do I get an AIP?
The first thing to do if you’re looking for an AIP is to “shop around” and choose a lender.
Once you’ve chosen your lender you’ll need to provide them with quite a lot of personal information, so it’s worth gathering documents together beforehand. You are likely to need:
- Proof of address for the last 3 years
- Proof of your basic income, plus any other benefits or maintenance paid to you, or any bonuses or dividends you have received recently
- Details of any other mortgages you have
- The amount you are hoping to borrow
- Details of regular expenditures, such as school fees, student loan or travel costs
- Any other loans that you won’t have paid off by the start of your new mortgage
Lots of these documents are necessary for the actual mortgage application, too, so it’s worth having them all ready in the same place.
It’s essential that the information you provide while applying for an AIP is accurate. If you provide incorrect information the offer is more likely to be withdrawn, or changed further down the line.
Getting an AIP is usually free, although some lenders do charge for the service. It’s worth finding this out before you submit your application to avoid any nasty surprises!
When should I get an AIP?
An AIP is usually valid for between 30 and 90 days, although the time period will vary between lenders. Deciding when to apply for your AIP is a bit of a balancing act, and there are various things to consider before doing so.
When you apply for an AIP there’s a good chance that it will leave footprints on your credit score Lenders’ approaches will vary - some will run a hard check and some will run a soft check. It’s worth finding out how your lender operates early on in the process so that you know its potential impact on your file.
Getting an AIP early will give you more authority in the market, and could help you to find a property earlier than you would do otherwise. It will also give you a better idea of what to expect from a lender and what your budget might be. However, as AIPs do lapse, applying too early might mean having to reapply - and this could affect your credit score.
If you’re concerned about your credit score, you could have a conversation with a lender and ask them to give you a ballpark figure for how much they would be likely to lend you. This is a little risky - it won’t leave a trace on your file, but *it’s also not nearly as reliable as an AIP for either you or potential sellers.
Be aware that if you’re getting an AIP months before you exchange on the property your lender’s rates could change in that time and you could end up getting a different deal - for better or worse. If your financial circumstances alter due to changes in your employment, income, or personal affairs, then your AIP will probably change too.
Having an AIP could open up opportunities for you in the property market, but there are lots of things to keep in mind as you consider applying for one. Most importantly, however, make sure you do your research first and find the right lender for you.