At this point, you do not need supporting documents such as pay slips or bank statements. A mortgage in principle is an official estimate of how much you can afford to borrow on a mortgage. This can be a very useful thing if you are looking for a first home (or a second lot) because it shows the realtor that you are a serious buyer and that any offer you make is realistic. A wholesale mortgage is exactly what it looks like — an indication of what a lender can actually borrow. It remains conditional on you being able to meet the mortgage criteria in practice, and is not a promise or guarantee. Whether the maximum amount you can afford is visible to the real estate agent depends on the type of mortgage that was issued to you in principle. You may be wondering why, in principle, you could first commit to a mortgage instead of just asking for a real mortgage. The simple answer is that it`s faster and less effort to get a mortgage in principle. You can often get a sort in less than an hour if there is no problem, and at most it should only take a few days. This frees you up to go home hunting in seriously, so you are able to make a fixed offer for a home that you make like the look of. A mortgage in principle – also known as the Agreement in Principle (AIP) or decision-in-principle (DIP) – is a written indication from a bank or real estate credit company (the lender) that indicates the amount it might be willing to grant you.
It`s not binding (they could always deny you a mortgage on these terms), but it`s a very useful indicator of what you can probably borrow, and real estate agents take them seriously. The bank also strives to make a decision in principle to brokers within 48 hours of filing a case. 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.
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