The problem is due to “agreements in principle.” Lenders favor the idea of these temporary mortgage offers as a quick and easy way for home buyers to know if they are eligible for a loan. Agreements are also seen as a way to speed up the procurement process by downgrading much of the financial document as soon as possible. A decision in principle is not a guarantee. If you go through the full application process, the lender will take a closer look at your income and credit history. You can choose not to give yourself credits at this point. Elliot Nathan, director of product development at Charcol, says the problem of several agreements is in principle compounded by the electronic processing of mortgage applications. Online applications can be automatically rejected because of information that the system cannot process. A mortgage is not in principle a formal mortgage offer, nor is it a guarantee that the lender will give you a mortgage in the future. Most lenders search for “hard” credit before offering you an agreement in principle that leaves traces in your credit file.
An agreement in principle (AIP) – also called Mortgage In Principle (PMI) decision – is a written estimate or statement from a lender to say how much money it would lend you if you bought a property. Since mortgage companies no longer rely on simple multiples of the buyer`s salary, but on loans based on so-called affordability, agreements could in principle be the only safe way for buyers to find out exactly how much they can spend. Once you have your agreement in principle, you can see real estate within your specific price range; that is, the amount you could possibly borrow, plus each deposit you may have saved. If you have had credit problems in the past or have a limited credit history and are not sure what a bank or construction credit union might lend you, an agreement in principle could give you extra security from your credit perspective. Any interest-free credit contract, including “white goods” such as dishwashers, as well as hi-fi chains and furniture. You can complete the entire process online – it should in principle only take about 15 minutes to get a mortgage. Filling out online forms with some lenders can even make you an immediate offer. It may take longer if you do it over the phone or in the store. The problem for buyers is that most lenders conduct a credit quality check as part of the agreement-in-principle process. And most of these cheques leave a “fingerprint” in the applicant`s credit file, whether they continue to borrow or not. Too many credit checks in a person`s file can make it difficult for them to arrange a credit, and the fact that a lender has checked the file stays on the record for six years. When we surveyed more than 3,000 homeowners in July 2019, 53% said they had an agreement in principle before applying for their mortgage.
About 25% said they didn`t know or didn`t remember having one, and only 25% said they didn`t.