Buying a new property is well known as being one of the most stressful things you can do and for good reason. With lots of processes, hurdles and unanswered questions, it can be an uphill battle including knowing whether you can get a mortgage in principle before selling your house.
Yes, you can get a mortgage in principle before selling your house. It can be an excellent way to get an estimate of how much you can borrow to help you understand what budget you have available to buy your next property. Also, you may need a mortgage in principle to view a house or make an offer.
There are no restrictions on when you can get a mortgage in principle, you can even get one if you’re not intending to buy a new property and may just want to understand what mortgage you can afford.
In this post, I’ll run through why it’s a good idea to a good idea to get a mortgage in principle before selling your house or even before you start looking at properties. Also answering common questions such as what documents you need and how you can maximise your borrowing capacity.
What Is A Mortgage In Principle
A mortgage in principle is a statement from a lender stating the amount they’d be willing to lend to you as a borrow based on an initial review. This statement can also be known as a decision in principle (DIP), agreement in principle (AIP) or mortgage promise.
Once you’ve chosen a property you are wanting to purchase, a full mortgage offer will be required to make the final purchase where the mortgage lender will conduct a more thorough review.
When conducting the final review the amount you’re able to borrow could change, either based on the lender’s requirements changing or details from your original submission changing. This is why trying to use the maximum amount a mortgage lender will let you borrow can be risky.
If you’re looking to maximise the amount you can borrow, getting help from a mortgage advisor can make sure you know all of your available options. I’ve also written about how to maximise the amount you can borrow later in the post.
Do You Need A Mortgage In Principle To View A House?
No, you don’t need a mortgage in principle to view a house. However, getting one in advance of viewing any properties can help you understand your budget and avoid wasting time looking at properties in the wrong price range. You may also need a mortgage in principle to make an offer.
Getting a mortgage in principle before selling your house can be very useful as you may already have an idea of what you want your next home to be like and understanding how much you’re able to borrow can be a quick way to understand if you’re able to afford it.
For example, if you currently own a property and have £75,000 in equity that you’ve built up over the years you’ve owned it. If you get a mortgage in principle and it comes back saying you can borrow £300,000, you know that your budget to buy a new home is around the £375,000 mark.
Knowing what budget you have available to buy your next property can allow you to have a quick look online at properties and be able to gauge whether they’re what you’re looking for. If it isn’t you know you need to take steps to increase your budget.
However, if you were to just start viewing properties without a mortgage in principle, you may fall in love with your dream home, only to be left disappointed if you find out it’s out of your price range.
Can You Put An Offer On A House Without A Mortgage in Principle?
Yes, you can put an offer on a house without a mortgage in principle. However, some estate agents may have it as a requirement to make an offer depending on how much demand there is for the property as it helps demonstrate you can afford your offer.
Even if a mortgage in principle is not required to make an offer it can be really helpful to have one in place as it shows you’re serious and ready to go ahead with the purchase. Most people selling their property are mainly looking for the process to go as smoothly as possible, especially if they’re in a chain of properties as one issue or delay can cause a buyer or seller to drop out and people losing their dream home.
This is why putting an offer on a property supported by a mortgage in principle can be to your advantage when compared to other potential buyers that don’t have one in place. This can also be useful when you’re looking to sell your property as well as you’ll also be vetting potential buyers so will be getting first-hand experience of what people selling their property are looking for to help them select a buyer.
How Long Does A Mortgage In Principle Last?
A mortgage in principle lasts between 1 and 6 months depending on the mortgage lender. Most only require a soft credit search which does not affect your credit score so getting another one, or renewing your original one will not affect your borrowing ability, however, the terms could change.
Can You Have More Than One Mortgage in Principle?
Yes, you can have more than one mortgage in principle. This can be helpful when first trying to assess your borrowing capacity if you want to get an agreement from a few mortgage lenders and shop around for a better deal. This can be very useful to know before you start looking at properties.
However, just make sure that you only get more than one mortgage in principle if they only require a soft credit search. If you do more than two hard credit searches within a 12 month period this can cause a negative impact on your credit score. Hard credit searches can be for any financial product from setting up a bank account to taking out a loan.
If this is unavoidable then there’s nothing you can do about it, however, understanding the difference between a hard and a soft credit search can help avoid any unexpected negative impact on your credit score.
I’ve written a more in-depth post about whether you can have more than one mortgage in principle that you may find useful.
What Documents Do You Need For A Mortgage In Principle?
For a mortgage in principle, you will need to be able to verify your identity, income and your outgoings with various documents and can either submit them yourself to a mortgage lender or work with a mortgage advisor that can help you with the process.
Here are some of the documents that could be needed by your chosen mortgage lender.
- Proof of ID (usually passport or driving license)
- Proof of address within the last 3 months (utility bill, council tax, bank statement)
- Proof of income (usually require the last 3 months’ payslips)
- Self-employed accounts (last 3 years or SA302 tax returns)
- Proof of deposit (bank or savings account documents or a confirmation letter if it’s a gift)
- Proof of outgoings & spending habits (3 months bank statements)
Your mortgage lender will then run a credit check with your consent. Remember that a hard credit search can impact your credit score and show up to other lenders, however, a soft credit search is only visible to you.
The mortgage lender may also ask you questions about the property you’re looking to buy such as the address, type of property, when it was built and the number of rooms within the property.
How To Maximise Mortgage Borrowing Capacity
Understanding how to maximise your mortgage borrowing capacity can allow you to be able to afford your dream home. Thankfully there are a lot of ways to increase the amount you’re able to borrow including extending the loan term, increasing your income and improving your spending habits.
Below I’ll run through some of the main ways you can maximise your mortgage borrowing capacity.
- Improve your credit score. Mortgage lenders rely on this metric to help them gauge your creditworthiness and the level of risk you pose as a borrower. Simple things such as making sure you don’t have any missed payments or ensuring you have a good amount of credit history can dramatically improve your score.
- Using a mortgage broker. A mortgage broker can help you understand all of your available options and find you a mortgage lender that can meet your needs. There are many mortgage lenders that specialise in certain scenarios, such as those with bad credit or multiple properties and knowing these exist can help you maximise your borrowing.
- Increase your income. Definitely easier said than done however with most mortgage lenders offering between 3.5 to 4.5 times your annual income, any increase can improve the amount you’re able to borrow with a mortgage.
- Pay off debts. When assessing you as a borrower, mortgage lenders review your current debts as they are other financial obligations that need to be paid which lowers the disposable income you have available to pay your mortgage. Paying off your debts will also have the added benefit of saving you paying interest so can be useful even if you don’t go ahead with a new property purchase.
- Improve your spending habits. Mortgage lenders want to be able to demonstrate that you’re able to afford the monthly mortgage payments. They also run stress tests to understand what would happen in certain scenarios such as if the interest rate increases as well as certain spending categories raising red flags. I’ve written a more in-depth post about how mortgage lenders review spending habits that may be useful.
- Extend the loan term. By extending the loan term, the amount you pay off the original balance every month is reduced. This lowers your monthly mortgage payment but also means you’ll end up paying more interest as you’ll be borrowing the money for longer. However, as the monthly mortgage payment is lower, your affordability increases which can increase the amount a mortgage lender is willing to let you borrow.
Overall, yes you can get a mortgage in principle before selling your house. Getting one in advance can help helpful for a number of reasons from knowing what budget you have available to avoid wasting time looking at the wrong properties to helping to improve the credibility of your offer.
Some estate agents and property sellers require that you have a mortgage in principle in place before you submit an offer to help them shortlist any offers. In my opinion, this is just the estate agents being lazy as it means an easier way to review fewer offers which could potentially have resulted in a higher price for the property.
However, it’s all part of the game and as you’re also selling your property, when you receive offers, if they’re supported by a mortgage in principle agreement from a mortgage lender, it can give you confidence that they’re a more serious buyer and not as likely to be wasting your time.
I hope this post has been useful. Good luck with your property search and selling your house!
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
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