What Is the Difference between Mortgage in Principle and Agreement in Principle
If you`re currently in the process of buying a home, you may have come across terms like „mortgage in principle” (MIP) or „agreement in principle” (AIP). While these phrases sound similar, they have distinct meanings that are important to understand. Here`s a breakdown of what each one refers to, and how they differ.
Mortgage In Principle
A Mortgage in Principle (MIP) is a conditional offer from a lender to provide you with a mortgage loan, based on your financial circumstances. It`s also commonly referred to as a „decision in principle” (DIP) or „mortgage promise”. This document outlines how much money you could borrow, as well as any conditions that the lender may have for approving the loan.
To obtain a mortgage in principle, you`ll typically need to provide the lender with some basic information about your income, assets, debts, and expenses. They`ll use this information to calculate how much they`re willing to lend you. A mortgage in principle is not a guarantee that you`ll be approved for a mortgage, but it can be a helpful tool for homebuyers to determine their borrowing power.
Agreement In Principle
An Agreement in Principle (AIP), on the other hand, is a more formal agreement between you and the lender. This document indicates that the lender has reviewed your financial information and has agreed to lend you a specific amount of money, subject to meeting certain conditions. These conditions might include things like a satisfactory property valuation, or proof of income.
Obtaining an agreement in principle is an important step in the homebuying process, as it demonstrates to sellers that you`re a serious buyer who has already secured financing. It can also help you to narrow down your property search to homes that are within your budget.
So What`s The Difference?
In summary, the key difference between a mortgage in principle and an agreement in principle is the level of certainty they offer. A mortgage in principle is a preliminary assessment of how much you could potentially borrow. An agreement in principle, on the other hand, is a more formal commitment from the lender to provide you with a specific amount of money, subject to certain conditions.
While both MIPs and AIPs serve similar purposes, they`re not interchangeable. It`s important to understand the differences between these terms so that you can use them effectively during the homebuying process. Be sure to discuss your options with your lender or a financial advisor to determine which approach is best for you.