Mortgage in Principle – What Can go Wrong?

A mortgage in principle is an indication from a lender of how much they may be willing to lend to an individual, based upon an initial and very basic assessment of an applicant’s information. It’s often a good idea to secure a mortgage in principle before you start househunting. It shows estate agents and sellers that you are a serious buyer and in a good position to make an offer on any property you wish to view.

Sounds straightforward, right? Yes, but there are a few things to be aware of when it comes to a mortgage in principle. In this article, we cover everything you need to know.

How reliable is a mortgage in principle?

A mortgage in principle is a good indication that you will be able to secure a mortgage with a particular lender. However, the most important thing to note is that it is not a formal mortgage offer. It is not a promise or guarantee. A mortgage in principle offer can be withdrawn at any time. It will only be formalised after the lender has conducted their thorough financial checks and risk assessment, otherwise known as underwriting. These checks will include an assessment of:

• Your personal financial situation
• The supporting documentation you have provided to verify the information detailed in your application
• A detailed review of your credit history
• Checks on the property that you’d like to buy, in order to confirm the property’s condition and value

If a lender comes across any issues during the underwriting stage or if you should fail to meet their criteria for any reason, then they may well reject your mortgage application. If your mortgage application does get rejected, this could potentially have a negative effect on your credit score. This could impact any subsequent mortgage application you may make.

Find out more – ‘What happens if a mortgage application gets rejected?’ & ‘Does getting rejected for a mortgage affect a credit score?’

Is a mortgage in principle a good sign?

Yes, a mortgage in principle is a good sign that you’ll be able to secure the mortgage that you need. It also gives you a good idea of the price range of properties that you should be exploring. This is because it gives you a strong indication of what you can realistically expect to borrow. Having a mortgage in principle should help you to avoid applying for a mortgage that is too big or that you don’t qualify for. Therefore, it helps to avoid having your application rejected.

Estate agents and sellers like potential buyers to have a mortgage in principle offer in place when enquiring about a property. And in fact, some agents may even refuse you a house viewing without a valid mortgage in principle in place to show that you are a serious buyer. For this reason, you may find not having a mortgage in principle could potentially be an obstacle to the house buying process.

Find out more – ‘What is a mortgage in principle?’

How long is a mortgage in principle valid for?

A mortgage in principle is usually valid for anytime between 30 and 90 days. This will differ from lender to lender. It’s important to be aware of when your mortgage in principle will expire. This will potentially be before you are ready to make an official mortgage application.

You don’t need a valid mortgage in principle in place before you formally apply for a mortgage. If you are still house hunting, however, and your current offer expires, then it’s generally a straightforward process the renew. If your personal circumstances or the economy have significantly changed since your initial mortgage in principle, then you may need to submit new information.

Additionally, if your circumstances change during the validity period of your mortgage in principle, then you should check with your mortgage broker or lender to ensure that it is still valid. It might be that you have changed jobs or received a change in your income. Dependent on any changes, this may require you to submit a new application.

What happens after a mortgage in principle?

So, you’ve got your mortgage in principle in place. Now it’s time to start the most exciting part of the process – househunting. Once you’ve found a property that you love, you can make an offer with the confidence that a lender has already indicated that you meet their basic lending criteria. If your offer is accepted, then it’s time to start the official mortgage application process.

A mortgage advisor and broker, such as us here at Mortgage Light, can help you prepare all the relevant documentation that you’ll need to support your mortgage application. We’ll also submit your mortgage application for you if you like. This way, we can ensure that everything is in order to help maximise your chance of success and get an offer through as quickly as possible.

Once your formal mortgage application has been submitted, the lender will carry out their usual underwriting procedure. This is to assess your suitability for a mortgage against their lending criteria. They will also want to assess the property that you are planning to purchase via a mortgage valuation survey. This is to ensure that the property is suitable as security for their loan and that its market value is sufficient to cover their advance to you.

If successful, you should expect to receive your mortgage offer within 2-6 weeks. This will often depend on the complexity of your application and property transaction. Your mortgage offer will usually be valid for 6 months. During this time, your solicitors will go through the legal process and eventually exchange contracts and complete the purchase.

Find out more – ‘What do I need for a mortgage application?’ & ‘How to buy your first home’

 

If you are in a position to begin your househunting journey, whether it’s your first home or you’re selling up and moving – speak to us at Mortgage Light. We can help you get a mortgage in principle secured so you can view properties with confidence.

Get in touch with us via our website or call 01908 597655.