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Mortgage Pre-Approvals | What You Should Know
Getting a mortgage isn’t a one-step process. When buying a house, it’s always helpful to know what your budget realistically is before you go shopping - after all, you may have some idea based on your deposit and income, but guesswork is a lot less secure than an actual agreement from a lender.
For this reason, many people choose to seek a mortgage pre-approval before scouring the market for a suitable property. How do you get such an approval, and what are the pitfalls to be avoided at this stage of the mortgage journey?
We'll cover everything you need to know in this guide.
And if you need to secure your own mortgage pre-approval, please get in touch to discuss the best options for you - we can typically provide a very fast turnaround for DIPs and AIPs.
Table of Contents
- What is Mortgage Pre-Approval? (AIP/DIP/MIP)
- How to Get an Agreement in Principle
- What Does an AIP Mean for Buyers?
- Potential Problems with Pre-Approvals
- Benefits of Using Clifton Private Finance
AIP, DIP, MIP - The Many Names of the Mortgage Pre-Approval
The idea of a mortgage pre-approval is fairly simple - it’s an agreement from a lender that says ‘assuming that everything you have told us is true and checks out, we see no reason why we wouldn’t give you a mortgage for the following amount’. It’s not a binding contract that guarantees the mortgage, but it’s an extremely good indicator of the amount of mortgage you can get. In the majority of cases, an mortgage pre-approval converts smoothly into a mortgage of that size.
Mortgage pre-approvals are known by a variety of names and, while there can be some extremely fine nuances between them based on the lender’s exact terms and conditions, in essence they are all the same thing - an ‘in principle’ agreement that if everything is as it seems to be, this will be your mortgage offer.
They can be called:
- Agreement in Principle (AIP)
- Decision in Principle (DIP)
- Mortgage in Principle (MIP)
This agreement (decision/mortgage) in principle can then be shown to prospective estate agents and sellers to let them know you are a serious potential buyer with the backing to make an offer on the property.
Getting an Agreement in Principle
Obtaining an AIP from your lender requires some basic details from you. The lender will assess this information at face value, perform a soft credit check (in most cases), and then make a preliminary decision regarding your mortgage.
To apply for a mortgage pre-approval, you will need:
- Proof of identity - Your ID and address details conduct, such as passport or driving licence, plus official documentation with your address clearly shown, such as a council tax bill.
- Employment and income status - At this stage, this is typically just a declaration rather than documentation, such as ‘I work at XXX company as a YYY and earn £ZZZ per year’.
- The size of your deposit - Again, this does not need proof, merely a declaration of your proposed deposit.
- Debts and commitment details - You will need to declare any other debts, such as credit card balances or car finance, and financial dependencies, such as number of children.
The lender will then perform a credit check to confirm your current financial standing. This is a soft credit check in almost all cases, which won’t affect your credit rating - though it is always worth confirming before application.
Mortgage Pre-Approval Success: Complex Income & Fast Solution
Recent Mortgage Case Studies
Read some of our recent client stories detailing how we can help in complex and unorthodox mortgage scenarios:
What an AIP Means
An Agreement in Principle is typically valid for between 30 and 90 days. With it you can go forwards confidently with your house search. You will have a defined and realistic budget for your home purchase and can make an offer on a property as soon as you are confident that it’s the right choice for you. Estate agents and sellers will treat you with the seriousness you deserve knowing that you have the financial backing to buy their properties.
6 Potential Problems with Getting an AIP
While the pre-approval process is designed to be as easy as possible, it can still result in complications, for example:
Non-standard income - Self-employed applicants and those with multiple varied income streams may find declaring their income complicated, or risk misrepresenting their income on their application resulting in an AIP that is either:
Too large - Your AIP will suggest you can afford property that is actually out of your budget, resulting in disappointment when the final mortgage is applied for.
Too small - You will miss opportunities for better homes because your estimated buying power is incorrectly shrunk.
Poor lender choice - Your AIP is tied to a specific lender. As most people will stick with the lender who supplied them the AIP when choosing the final mortgage, this means you may have effectively chosen your lender at a very early stage. This limits your options and will likely lead to a mortgage with larger interest rates and poorer terms than you could have otherwise obtained, costing thousands of pounds in the long run.
Difficulties with affordability checks - Many people greatly underestimate their outgoings or miss valid income streams, leading to incorrect figures in the AIP application. This can significantly stifle buying power, or worse, lead to an eventual mortgage rejection when the full affordability check is undertaken.
Affecting credit rating and mortgage viability - While an AIP check is typically a soft credit check that is designed to provide the lender information without affecting your credit history, multiple mortgage pre-approval applications can be off-putting for lenders. If you try to play the field too much, you could find yourself being rejected by otherwise beneficial mortgage lenders.
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Using Clifton Private Finance for your Mortgage Pre-Approval
By partnering with Clifton Private Finance as your mortgage broker, you smooth the mortgage pre-approval process and ensure your AIP is properly calculated. Working with you, we can:
- Make the application process easier - We know the paperwork that’s needed by lenders and can help you get everything together in advance to make sure the process is as effortless as possible.
- Access the wider UK mortgage lender landscape - As specialist mortgage brokers, Clifton Private Finance has access to the full marketplace of mortgage lenders, from the traditional high-street banks to specialist lenders. We will discuss your circumstances and select the best lenders for you to ensure your final mortgage has the lowest possible interest rate and most flexible terms that suit your needs.
- Bring multiple income streams together - We know the right questions to ask to properly evaluate your true income. Not only that, but our relationships with specialist lenders means we can point you to the mortgage providers who have the best understanding and flexibility for your particular employment and income situation, maximising the chances of a successful application.
- Undertake early affordability tests - Our experience with lenders means we can accurately estimate the results of their affordability checks and mortgage stress tests. We can talk you through the calculations and make sure the AIP accurately represents the final mortgage decision making process.
- Limit credit score exposure - By only making applications to a few lenders once we have properly evaluated your situation, we minimise the influence on your credit history, ensuring you remain positively viewed for future credit applications - including the essential full mortgage application.
- Provide financial management advice - If you are struggling with debt management, saving for a deposit, or improving your credit score, we can offer a range of steps and appropriate products to better develop your financial profile for your mortgage application.
- Maximise your buying power - Bringing together our expertise and skill with the understanding of lenders’ criteria, we will make sure your AIP represents the highest mortgage possible, boosting your buying power and getting you the home you truly desire.
- Transition from the mortgage pre-approval process to a successful full mortgage - Clifton Private Finance are here to work with you throughout the process, from the early AIP application to you unlocking the front door of your dream home.
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