Agreement in principle, also known as AIP, is a certificate issued by a lender to a borrower, indicating that they are willing to lend a certain amount of money, subject to the completion of additional checks. AIP is not the same as a formal mortgage offer but is a crucial step in the home-buying process.
Here are some of the requirements needed to obtain an agreement in principle:
1. Credit Check
The lender will perform a credit check on the borrower to determine their creditworthiness. Borrowers with good credit scores are more likely to be approved for an agreement in principle than those with poor credit scores. The credit check will also reveal any outstanding debts or financial issues that could affect the borrower`s ability to repay the loan.
2. Income Verification
The lender will require proof of the borrower`s income to determine if they can afford the mortgage repayments. This could include pay slips, tax returns, or bank statements. Self-employed borrowers may be required to provide additional documentation, such as accounts or tax returns, to verify their income.
3. Employment Verification
The lender will want to ensure that the borrower has a stable source of income and is employed. They may request a letter from the borrower`s employer or ask for proof of employment.
4. Property Valuation
A property valuation is required to ensure that the property`s value is sufficient to cover the loan amount. The lender will instruct a valuer to visit the property and provide a report on its value.
5. Proof of Deposit
The lender will require proof that the borrower has a deposit saved to put towards the purchase of the property. The borrower may be required to provide bank statements or savings account statements to verify this.
Once the lender has reviewed all of the information and is satisfied with the borrower`s application, they will issue an agreement in principle. This document outlines the amount the lender is willing to lend, subject to the completion of additional checks.
In conclusion, an agreement in principle is an important step in the home-buying process. To obtain one, borrowers need to ensure they meet the lender`s requirements, including passing a credit check, providing proof of income and employment, having a deposit saved, and ensuring the property`s value is sufficient. By meeting these requirements, borrowers are more likely to be approved for an agreement in principle, making the buying process smoother and less stressful.