Agreement in Principle: What Happens Next?
When a potential borrower applies for a mortgage, they may be given an `agreement in principle` or AIP. But what does this mean, and what happens next?
An agreement in principle, also known as a Decision in Principle or DIP, is a statement from a lender indicating how much they may be willing to lend you based on the information you`ve provided. It means that, subject to certain conditions, they are willing to lend you money.
Once you have an agreement in principle, you can start looking for houses knowing that you have a rough idea of how much you can afford to spend. However, it is important to understand that an AIP is not a guarantee of a mortgage; it is only an indication of how much a lender may be willing to lend.
So, what happens next?
1. Find the perfect home
Armed with your AIP, you can start to search for your dream home! You can look at properties within the budget that you have been given, and you will have a better idea of what you can afford.
2. Make an offer
When you have found the property that you want to buy, you can make an offer to the seller. If your offer is accepted, you will need to move on to the next step.
3. Full mortgage application
Once your offer has been accepted, you can make a full mortgage application. This is where the lender will conduct a more thorough assessment of your financial circumstances, including an evaluation of your credit score, income, and expenses.
4. Valuation and legal work
After your full application has been submitted, the lender will conduct a valuation of the property to ensure that the price you have agreed to pay is reasonable. They will also do legal work to make sure that the property has no outstanding debts or legal disputes.
5. Mortgage offer
If your application is approved, you will receive a formal mortgage offer from the lender. This offer will outline the conditions of the mortgage, such as interest rate, term, and repayment schedule.
6. Exchange of contracts
Once you have received the mortgage offer, you will need to exchange contracts with the seller. This is a legally binding agreement that commits both parties to complete the sale.
7. Completion
On completion day, your lender will transfer the mortgage funds to your solicitor, who will then transfer the funds to the seller`s solicitor. You will then receive the keys to your new home!
In conclusion, an agreement in principle is an important first step towards getting a mortgage. It gives you an idea of how much a lender may be willing to lend you, which is a key consideration when you are looking for a property. Once you have an agreement in principle, you can start to look for houses within your budget. However, it is important to understand that an AIP is not a guarantee of a mortgage; you will still need to go through the full application process before you can secure a mortgage offer.