Timing can be critical when you want to buy your home with the help of a mortgage. Sometimes, you might be wondering whether you are putting the cart before the horse – you can’t buy your house without a mortgage, but you can’t get a mortgage until a mortgage lender knows what house you plan to buy.
Naturally, your mortgage can only be advanced on a particular property you want to buy. But some would argue that if you have already started looking at homes you would like to buy, you have already left it too late to start the process of getting a mortgage.
Getting pre-approved for a mortgage before house hunting
One way of resolving that conundrum is to get pre-approved for a mortgage before house hunting. Pre-approval or a mortgage decision in principle does not bind you or the lender, since it is recognised that several steps still need to be gone through – not least, your finding the house you want to buy.
The agreement in principle – or “mortgage promise” as it is sometimes called – is just that: a lender’s agreement that, based on the information you have given them so far, they will be prepared to lend a given sum of money if and when you find a suitable property.
Benefits of getting pre-approved
There are several benefits to getting your mortgage pre-approved – as discussed by credit reference agency Equifax:
- it gives you a much clearer, more definite idea of how much you are going to be able to borrow – you may embark on your house hunting confident that at least one lender is prepared to lend you a given sum of money;
- approval in principle represents a head start on the whole mortgage application process – and may help to make sure that the remaining steps proceed smoothly and without unexpected surprises; and
- it may give you an advantage over other buyers interested in the same property as you if the seller knows that you, at least, have a mortgage promise.
The standing of your agreement in principle
It is important to grasp the emphasis of that “in principle”. Nothing is set in stone. You have not yet made a formal mortgage application – you are still looking for the house you want to buy after all – and the lender has yet to complete the necessary final assessment of your application.
In order to grant the agreement in principle, for example, a lender will invariably conduct some level of creditworthiness check. This might be a formal “hard” credit check with the credit reference agencies, or it may be no more than a “soft” credit check, based on the financial information you provide at that moment in time and without further reference to your formal credit score.
If you are pre-approved for a mortgage based on a soft credit check, therefore, there is no adverse effect on your credit rating is the request for approval is rejected; the opposite is true if a hard credit check is conducted. Before requesting a mortgage agreement in principle, therefore, it is important to establish whether the credit check is going to be soft or hard.
Pre-approval: period of validity
Your mortgage agreement in principle is likely to be valid for a period of between 60 and 90 days.
This means that you are unlikely to want to seek pre-approval too soon – before you are even ready to start looking for likely homes to buy, for example. On the other hand, if your house hunting takes much longer than you had anticipated, you might always request a further agreement in principle if the first has subsequently expired. Once again, though, you might want to ensure that repeated requests for pre-approval are not going to adversely affect your credit rating.
Your mortgage offer
Even though you secured pre-approval and a mortgage agreement in principle, the lender might still decide to reject your formal application when you are ready to make an offer to purchase your home.
This might be because of the passage of time between the initial agreement in principle and your formal application or because the checks and assessments conducted in the light of your formal application have revealed information the lender had previously been unable to consider. Only your formal application, for example, had revealed the true state of your credit history or the lender has serious reservations about the valuation of the property you want to buy.