The First Time Buyers Guide - Mortgages and AiP

Our first time buyers guide series sees us covering different aspects of the house buying journey. This time round we’re looking at mortgages and Agreement in Principles (AiP), which follows almost directly from our ‘Saving a Deposit’ piece. 

Once you have your deposit together, you are one bit closer to picking your dream home, but you’ll need to look at mortgages first. Gaining knowledge of how much you can get with a mortgage will allow you to view houses within an affordable range, and having an AiP will prove to estate agents / developers that the price is within your range. 

As mentioned in Saving a Deposit, most mortgage lenders allow you to borrow up to four and a half times your household income, but if you’re looking for a more specific number without obligation, there are several resources online that can help. 

Trusted and useful resources include:

• Moneyadviceservice.org.uk - mortgage affordability calculator
• Which.co.uk - how much can I borrow mortgage calculator
• Mortgageadvicebureau.com - borrowing amount calculator

Online mortgage affordability calculators will take bits of information and provide a rough idea of how much you can afford. To use the calculators, you will need the following information to hand: 

• Your household income (whether that’s you, or you and your partner).
• Any guaranteed bonuses or overtime (if you haven’t already factored this into your household income).
• ALL financial obligations (this can be tricky. They are not looking for what you spend on your groceries or on household bills. They want to know about larger commitments. Think along the lines of credit cards, overdrafts, loans, car finance etc.).

Once you have an idea of how much you can borrow, you can begin to look at rates. This is something you can do on your own with some online research, or you can go with an independent mortgage broker who will take all your information and do all the research for you, and report back to you with the best deals on the market for your situation.

Once you have your deposit in place, an idea of how much you can borrow and at what rate, you will be eager to start seriously looking at some houses! But, before you go booking viewings at everything you’ve been ogling on Rightmove, you will need to get an Agreement in Principle, also known as an AiP (and sometimes known as a Decision in Principle - DiP). 

The AiP acts almost like a placeholder. It’s a bank or building society saying ‘we could lend these people up to this amount of money should they choose to buy a house’. An AiP is not an actual mortgage, and you will have to fully apply for a mortgage once an offer has been accepted, but you need an AiP in place before most estate agents will accept an offer. It acts as the proof that you can afford what you’re saying you can afford. 

As eager as you may be to run after houses, get your Agreement in Principle in place first so you don’t lose out on your dream house when you find it. 

If you’ve done your own research, you can go directly to the bank or building society of your choice and ask them for one. A lot of banks now offer AiPs online, so you may not even need to leave the house! If you’ve gone with an independent mortgage broker, they can apply on your behalf for your AiP and pass it back to you. 

Bear in mind to gain an AiP, you will likely need to hand:

• Proof of ID
• Proof of current address (like a recent utility bill)
• 3 months of payslips
• 3 months of bank statements
• Details of any credit commitments (credit cards, loans, car finance, overdrafts etc.)

This is the stage now where you hunt your dream home, put in your offer, and then work with a solicitor to get the process started. Once you’re here, your mortgage will come back into play. 

Though you had your Agreement in Principle, now you need to officially/fully apply for your mortgage so you can purchase your home (depending on how you received your Agreement in Principle you may not need to supply any further information). 

Your mortgage lender will now be checking your financials with a fine tooth comb, this includes household income - basic salaries plus any additional bonuses or benefits, as well as checking outgoings and your credit score. 

Hopefully, you will already have most of the documentation you need, but depending on how long since you received your Agreement in Principle, you may need to gather some additional bank statements and payslips. 

You will also need to consider how much you would like to pay back each month, and over what period. The less you want to pay each month, the longer the term you will pay. Your mortgage provider or independent mortgage broker will be able to provide you with more information and lay out a few options for terms and monthly costs. 

Once your mortgage application is approved you can take a breath and focus on other parts of the house buying process. 

 If you’re ready to look at homes, and are looking for quality builds in the East Midlands, you can search all of our available developments here.