A mortgage in principle is an official estimate of how much you can afford to borrow on a mortgage. This can be a very useful thing if you are looking for a first home (or a second lot) because it shows the realtor that you are a serious buyer and that any offer you make is realistic. A mortgage in principle – also known as the Agreement in Principle (AIP) or decision-in-principle (DIP) – is a written indication from a bank or real estate credit company (the lender) that indicates the amount it might be willing to grant you. It`s not binding (they could always deny you a mortgage on these terms), but it`s a very useful indicator of what you can probably borrow, and real estate agents take them seriously. A wholesale mortgage is exactly what it looks like — an indication of what a lender can actually borrow. It remains conditional on you being able to meet the mortgage criteria in practice, and is not a promise or guarantee. An “agreement in principle” is given by lenders to say that, based on basic information about you, they think they would grant you a mortgage if you apply for a mortgage. It may be helpful to have an agreement in principle if you are hunting at home, as this gives you an idea of what you can afford, and some housing agents will check if you have one before you show a property. But it does not guarantee you a mortgage, and it is possible to be rejected by a lender after giving you an agreement in principle.
Once you have your agreement in principle, you can see real estate within your specific price range; that is, the amount you could possibly borrow, plus each deposit you may have saved. The size of your contract can in principle be a useful indicator of how much you can borrow. You can use it to search for real estate in your price range. Whether the maximum amount you can afford is visible to the real estate agent depends on the type of mortgage that was issued to you in principle. A mortgage in principle can also save time in the purchase process, both in terms of accepting your offer and speeding up the mortgage application process. You may be wondering why, in principle, you could first commit to a mortgage instead of just asking for a real mortgage. The simple answer is that it`s faster and less effort to get a mortgage in principle. You can often get a sort in less than an hour if there is no problem, and at most it should only take a few days. This frees you up to go home hunting in seriously, so you are able to make a fixed offer for a home that you make like the look of.