What is a Mortgage In Principle

Mortgage and principle, also known as decision in principle or agreement in principle, is a term that refers to a preliminary evaluation of a borrower's creditworthiness by a lender. This evaluation is conducted to determine the likelihood of the borrower being approved for a mortgage loan. Estate agents and builders often require borrowers to have an agreement in principle before they reserve a property, as it provides evidence that the borrower is able to secure a mortgage.

In this blog post, we will take an in-depth look at mortgage and principle, what it is, how it works, and why it is important. We will also explain the difference between a soft check and a hard check, and what borrowers should expect during the evaluation process.

What is Mortgage and Principle?

A mortgage and principle is an informal evaluation of a borrower's creditworthiness, conducted by a lender to determine whether or not they will lend money to the borrower. This evaluation is conducted before the borrower submits a full application for a mortgage loan. It is important to note that a mortgage and principle is not a guarantee that a borrower will be approved for a mortgage loan, but it is a good indication of the likelihood of approval.

How Does Mortgage and Principle Work?

When a borrower applies for a mortgage and principle, the lender will conduct a preliminary evaluation of the borrower's credit and financial situation. This evaluation typically includes a review of the borrower's credit score, income, employment status, and other financial obligations. Based on this information, the lender will make an informal judgment on whether or not they will lend money to the borrower.

The estate agents and builders who are involved in the property purchase process often require borrowers to have an agreement in principle before they reserve a property. This is because it provides evidence that the borrower is able to secure a mortgage loan and is a serious buyer.

Soft Check vs Hard Check

There are two types of checks that may be conducted during a mortgage and principle evaluation: a soft check and a hard check. A soft check is a quick evaluation of the borrower's credit and affordability, and does not leave any footprints on their credit report. A hard check, on the other hand, is a full credit check that can impact the borrower's credit score.

A soft check is conducted by a lender to quickly evaluate the borrower's credit and affordability. During a soft check, the lender will review the borrower's credit score, income, employment status, and other financial obligations. This evaluation is not as intrusive as a full check, and does not leave any footprints on the borrower's credit report. This means that other lenders will not know that the borrower has applied for a mortgage loan.

A hard check, on the other hand, is a full credit check that is conducted by a lender when a borrower submits a full application for a mortgage loan. During a hard check, the lender will review the borrower's credit report in detail and will let everyone know that they are checking it. This can impact the borrower's credit score and make it more difficult for them to secure a mortgage loan in the future.

What to Expect During the Evaluation Process

During the evaluation process, borrowers should expect the lender to review their credit score, income, employment status, and other financial obligations. Borrowers should also expect the lender to conduct affordability checks to determine whether or not they can afford the mortgage loan.

It is important to note that the scoring process can change after a full application is submitted, and the decision in principle can change. This is because some lenders may check different credit agencies during the evaluation process than they do during the full application process.

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