An AIP is quite simply an agreement in principle, otherwise known as a decision in principle (DIP). People use different terms, but they mean exactly the same.
An AIP is a credit score AND an assessment of basic lending rules to assess whether the lender is ‘likely’ to say yes or no! In a way, it’s a bit like a shopping list of the type of borrower the lender is looking for. If you are on that list you pass, if not, you don’t! But don’t worry each lender has their own shopping list, so if you don’t pass with one lender, there might be another that will be okay with your circumstances.
The key point to remember is the word ‘likely’!
Remember to get an AIP doesn’t necessarily need any proof of income! You input the figures and it spits out a result. You put in rubbish you get rubbish out springs to mind! The reality is many mortgage brokers and even mortgage advisors in banks will just input figures they have been told (without knowing if the figures are right as they haven’t seen the income) and it can give false hope!
Oh and don’t forget an AIP does not mean you have a mortgage. The word agreement in ‘principle’ is important. It’s not an agreement definitely!
The problem with false hope!
Not only can a potential buyer think they have a mortgage, but they might also have a false indication of what they can borrow (unless of course the person who did it actually saw the income) and any other relevant party, estate agents, and their clients spring to mind!
The other thing to be aware of is that an AIP is only usually valid for 30 days.
So all in all, an AIP has limited value (not invaluable, just limiting) and is often grossly overvalued. The truth is often mortgage brokers and banks often encourage clients to do them as a way to hook them in. If someone has just started to look at buying a property do they really need to do an AIP right away when it’s likely to expire in 30 days? How long does the average property hunt take? I would imagine more than 30 days!
A better way to get a mortgage
We believe in only doing AIP’s if we think there is a really good reason to do so. Maybe a client thinks they may have a historical credit issue and it is prudent to check before they spend lots of time house hunting, this seems to be a sensible approach. Of course, it’s not to say we encourage clients to house hunt without knowing what they can do…because we definitely don’t!
Instead rather than having a rough idea we like to thoroughly assess (just like we know the banks will) someone’s circumstances and give them an accurate idea of exactly what they can do. To do this does not always require an AIP.
So remember an AIP is okay and should not be thought of as certainly. It is much better if a client has actually spoken properly to an independent mortgage broker who has actually taken the time to assess a client's income and circumstances. In fact, that is the ultimate AIP!
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