When it comes to securing a mortgage, there are many terms and concepts to understand before signing on the dotted line. One of these important concepts is an agreement in principle, which is also known as a mortgage decision in principle.
An agreement in principle is a document that demonstrates that a lender is willing to grant a mortgage loan to a borrower. In simpler terms, it is a statement of intent from a lender stating that they would be willing to lend a certain amount of money to an individual for a mortgage.
An agreement in principle is not a binding offer, and it does not guarantee that a mortgage loan will be issued. However, it can be an important step in the home-buying process as it shows sellers and estate agents that the borrower is serious about buying a property.
The process of obtaining an agreement in principle involves an assessment of the borrower`s financial situation. The lender will typically conduct a credit check and review the borrower`s income, expenses, and debt levels. This information is used to determine the maximum amount of money that the lender would be willing to lend to the borrower.
An agreement in principle is generally valid for a limited period, typically between 60 and 90 days. If the borrower does not complete the mortgage application process within this time frame or if their financial circumstances change, the agreement in principle may become void.
While an agreement in principle is not a binding offer, it can be a useful tool for borrowers as they search for the right property. It can also be helpful in negotiating with sellers, as it shows that the borrower has taken steps to secure financing.
In conclusion, an agreement in principle is a statement of intent from a lender that they are willing to grant a mortgage loan to a borrower. It is an important step in the home-buying process, as it demonstrates to sellers and estate agents that the borrower is serious about buying a property. While it is not a binding offer, it can be a useful tool for borrowers as they navigate the mortgage application process.