From Agreement in Principle

Post Date : September 6, 2023

From Agreement in Principle: The Crucial Step in Homebuying

As a prospective homebuyer, one of the essential steps you will need to take is securing an Agreement in Principle (AIP). Also known as a Mortgage in Principle or Decision in Principle, an AIP is a document that confirms how much a lender is willing to lend you towards a mortgage. It is an important step in the homebuying process as it helps you determine your budget and lets sellers know that you are a serious buyer.

Here are some key things to know about securing an AIP:

1. Think of it as a pre-approval

An AIP is not a formal mortgage offer, but it is a pre-approval of sorts. It shows sellers that you are serious about buying a home and that you have taken the necessary steps to secure the financing to do so. An AIP is also beneficial for you as it gives you an idea of how much you can afford to borrow, which then helps you narrow down your search for a new home.

2. It’s not a guarantee

While an AIP is an important step towards securing a mortgage, it is not a guarantee that you will be approved for one. The lender will still need to conduct a full credit check and assess your financial situation before making a final decision. However, an AIP will give you a good idea of where you stand and what you can reasonably expect to borrow.

3. It’s quick and easy to obtain

Obtaining an AIP is a straightforward process. Most lenders offer online applications that can be completed within minutes. The lender will typically ask for some basic information about your financial situation, such as your income, expenses, and credit score. Once you have submitted the application, the lender will usually provide a decision within a few hours or days.

4. It’s not set in stone

AIPs typically have a validity period of around 90 days. This means that if you don’t find a property within that time frame, you may need to reapply for a new AIP. Additionally, if your financial situation changes during that time – for example, if you lose your job or take on new debt – the lender may reassess your application and adjust the amount they are willing to lend you.

In conclusion, securing an Agreement in Principle is a crucial step in the homebuying process. It helps you determine your budget, shows sellers that you are a serious buyer, and can give you a competitive edge in a competitive housing market. However, it is important to remember that an AIP is not a guarantee and that the lender will still need to conduct a full assessment of your financial situation before approving your mortgage application.