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. If you are considering how much money to borrow, the mortgage lender should check your credit history to make sure you would be able to meet the monthly payments. Full credit checks leave a “fingerprint” in your credit file. Many footprints in your file can have a negative impact on your score, simply because it suggests an element of “desperation” to borrow money. As a result, many apps can count against you if you come to apply for a full mortgage. Once you have decided to start the house hunting seriously, you are in principle asking for a mortgage. Apart from its practical applications, it will help you focus on and engage in your task. Knowing what you can afford, even in theory, gives a huge boost to trust. If you remortgaging, there is less need for this information, so you would file an agreement in principle once you have chosen a lender and a product. A mortgage in principle is not mandatory, but there are several good reasons to make one. A mortgage is in principle also known as a policy decision (DIP), agreement-in-principle (AIP) or mortgage promises. This is a statement from a lender that says it will lend you a certain amount before you have completed the purchase of your home.
If you are buying a property in Scotland, you must receive one before making an offer. In principle, a mortgage agreement is followed by a full mortgage application and the information provided in the original decision is accompanied by referrals. It is therefore important that the facts made available to the mortgage lender be correct for the first time, as the erroneous information of their insurers is reprehensible and may lead to rejecting your case or changing the terms they are willing to offer. There are some mortgages specifically for those who have bad credit. Most lenders search for “hard” credit before offering you an agreement in principle that leaves traces in your credit file. In principle, you will receive a mortgage online, over the phone or, if you apply from a bank or real estate credit company, in a branch. Some lenders will give you a certificate if they offer in principle a mortgage that can be useful to show real estate agents. What this entails differs depending on the lender, but could be a) an explanation that they are willing to lend the amount requested for b) the maximum amount they may be willing to lend, or c) simply a statement that your mortgage was accepted 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. Realtors will often want to make sure that you will be able to get a mortgage on a property before making an offer, so it may be helpful to have an agreement until that date.
An AIP is not the same as a formal mortgage offer, so you should always apply for a mortgage once you have accepted an offer for a property.