A policy decision shows that one can theoretically afford to buy a property. This could make you a more attractive buyer and set you apart from other potential buyers. To reach an agreement in principle, you must contact a mortgage lender directly or through a mortgage broker. Make sure you get advice on products and lenders before pursuing an agreement in principle, as you can leave a soft or hard footprint in your credit file. Some lenders will give you a certificate if they offer in principle a mortgage that can be useful to show real estate agents. What this entails differs depending on the lender, but could be a) an explanation that they are willing to lend the amount requested for b) the maximum amount they may be willing to lend, or c) simply a statement that your mortgage was accepted in principle. 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. A mortgage is only officially offered when a mortgage has been made and you have applied for a loan. This does not make a decision in principle an unnecessary exercise since the majority of real estate agents will seek proof of an IAP. Reaching an agreement in principle is generally considered a first step in applying for your mortgage.
Even if your mortgage is accepted in principle, your full mortgage application could be rejected at a later date. For example, if the lender only performed a gentle credit check, it may not have seen it all in your credit file. Other information may be revealed when searching for a full mortgage application. A mortgage in principle is not mandatory, but there are several good reasons to make one. Apply for your mortgage in principle or check out our guide for more information. 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. The important thing is that not all mortgages are equal in principle.
So be warned and they can give you a misguided sense of security.