What is an agreement in principle and why do I need one?

An agreement in principle or AIP is also known as a decision in principle or DIP. It is an initial offer from the lender stating how much they would be willing to lend you, if your full application is accepted – so it’s not a guarantee.

For a mortgage it is an essential piece of information because it gives you a clear idea of how much you can borrow, helping you set a realistic budget for your home search. It also shows sellers that you are a serious buyer, which can strengthen your position when making an offer.

Having an agreement in principle can speed up your mortgage application once you find your ideal home. If you’re planning on buying a home any time soon, we advise you to get an agreement in principle sorted sooner than later. 

To get an agreement in principle the lender will need some key information from you such as

• Proof of identity such as a passport or driving licence 
• Proof of address like a utility bill or bank statement 
• Proof of income such as recent payslips or tax returns if you’re self-employed 
• Details of your income and outgoings

An agreement in principle will last for between 60 and 90 days depending on the lender, this gives you time to find a property and to make an offer.

For most lenders an agreement in principle will only involve a soft credit check which doesn’t affect your credit score. When you apply for a mortgage, a full credit check is carried out. 

Once the offer is accepted then you need to move on to a full mortgage application or FMA.

If you’d like free, independent, expert advice on the whole process, get in touch.