What is a Mortgage In Principle

02/09/23 • 3 min

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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What is Mortgage and Principle?

How Does Mortgage and Principle Work?

Soft Check vs Hard Check

What to Expect During the Evaluation Process

Please like share and subscribe if you find our information useful

Previous Episode

Getting Your Paperwork in Order: The Key Documents Needed for a Mortgage Application

Applying for a mortgage can be a complex process, but getting your paperwork in order at the earliest possible time can make the process smoother and more efficient. In this article, we'll go over the key documents that you'll need to provide when applying for a mortgage and give you some tips on making sure that the format of these documents meets the requirements of the lender.

Identity Proof: To prove who you are, you'll need to provide either your passport or driving license. It's important to make sure that these documents are up to date and valid, and that they meet the criteria of the lender.

Proof of Address: You'll also need to provide proof of where you live. This can often be done by supplying bank statements to the broker or bank, but if not, you may need to provide another form of proof such as a driving license.

Proof of Income: Proof of income is a crucial aspect of getting a mortgage. Some lenders can do internal checks and won't need to see evidence of your pay slips, especially if you bank with them. However, if you're using a broker, you'll typically need to provide at least three months worth of pay slips, which can vary depending on the frequency of your pay. If you receive income from sources such as bonuses, overtime, or commissions, the lender will also need to see this to ensure that it will continue when you apply for the mortgage. For self-employed individuals, different documents may be required, such as tax year overviews, financial accounts, an accountant's certificate, and copies of contracts.

Deposit: You'll need to provide evidence of where the funds for your deposit came from. A paper trail for three months is usually sufficient for the lender, but you may need to provide evidence for a longer period of time. You may also be asked for bank statements.

Format of Documents: It's important to understand the format that the lender requires for the documents. Your broker or bank can help you with this. For example, bank statements may need to show your full name, address, sort code, and account number, as well as all transactions in and out of the account. Pay slips may need to include your name and be provided front and back. The format requirements can vary from client to client and lender to lender, so it's important to check with your broker or bank to make sure you're providing the right format.

In conclusion, getting your paperwork in order and understanding the format requirements of the lender can help make the mortgage application process go more smoothly. Talk to your broker or bank for a list of the specific documents required for your inquiry and for guidance on the correct format. Good luck!

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Next Episode

Buying a property in Scotland: It is important to understand the Home Report

When buying a property in Scotland, it is important to understand the Home Report. The majority of properties on the open market come with a Home Report, which provides valuable insight into the condition of the property before you buy it. The Home Report is divided into three main sections: the Single Survey, Energy Performance Report, and the Property Questionnaire.

The Single Survey provides a visual inspection of the property and its condition. It also indicates any repairs that may need to be done, categorizing them into three categories: Category 1 (no repairs needed), Category 2 (future repairs needed), and Category 3 (urgent repairs needed). It is important to read and agree to the conditions outlined in the Single Survey before buying the property.

The Energy Performance Report provides an estimate of the property's running costs, including heating, lighting, water, and environmental impacts. Properties with high energy efficiency ratings (A or B) may be eligible for lower interest rates or cash back from lenders.

The Property Questionnaire is filled out by the current owners and provides information about the property, including council tax, bonding, and any alterations made to the property. It is important to review the Home Report and look out for key information, such as the property evaluation, energy efficiency rating, council tax, and general condition of the property. If using a mortgage broker, it may be helpful to send the Home Report to them for review.

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