Getting a mortgage in principle (AIP or DIP) is a great way to show estate agents that you’re serious about buying a home. It also gives you an idea of what you could afford.
A credit check will be carried out on your file to decide whether the lender will accept you as a customer. This can leave a ‘soft’ or a ‘hard’ footprint on your credit report.
- You don’t meet the lender’s criteria
After you get a mortgage in principle, your lender will carry out a credit check to see whether or not you qualify for a loan. Depending on the lender, this will be done via either a soft or hard search of your credit file.
If your application is declined, you will receive a declination letter from the lender. This will tell you what went wrong with your application, and why you weren’t approved. You can then review your credit report to identify what the issues were, and correct them before you submit another application.
You can also contact the lender to find out why they rejected your application and work out what you need to do next. You can then apply for a loan elsewhere or contact a mortgage broker to help you find a suitable lender.
The reason you were declined for a mortgage after getting a mortgage in principle is that the lender found something on your information that didn’t meet their lending criteria when they carried out a full search of your credit file. This can include things like a history of defaults, missed payments, or a low credit score.
It can also mean you have a thin credit file, which means you don’t have any or very little credit history. This can make it more difficult for you to get a mortgage because lenders need to be sure that you have a history of being responsible with money.
However, if you have a credit problem and can show that you’re committed to improving your situation, a specialist mortgage advisor will be able to approach the right lenders for you. Typically, they’ll carry out an assessment of your finances to establish which lenders are most likely to be willing to lend to you, and avoid the ones who won’t.
If you think you might have a problem, it’s best to get a free copy of your credit report and credit score from the three major credit reference agencies (Experian, Equifax, and TransUnion) before applying for a mortgage. This will give you a clear idea of your credit score and allow you to take steps to improve it, so you can secure a mortgage.
- You make a mistake on your application
Getting a mortgage in principle can be a great way to find out how much you can borrow, especially if you’re new to the property market. This will give you a good idea of how much you can afford and reduce the risk of applying for a mortgage that you can’t actually afford.
You can get a mortgage in principle from most lenders, including some mortgage brokers and online direct banks. It’s a free and easy process that takes less than 15 minutes to complete, with some lenders even offering you a decision straight away.
It can also be a good idea to get a mortgage in principle before you start looking for your dream home, as it can help you work out whether or not you can realistically afford what you want to buy. This will help you to focus your search and reduce the chance of missing out on your ideal home.
However, it’s important to note that a mortgage in principle is only as good as the information you give to the lender when you apply for one. Providing inaccurate or incomplete information can result in your application being rejected – so make sure you get all the details right.
The best part about a mortgage in principle is that it won’t affect your credit score. Some lenders will run a ‘soft’ credit check while others will conduct a ‘hard’ one, so be sure to read the small print.
A mortgage in principle is a low-risk way of finding out what you can afford and it’s the perfect way to get your house hunt started. Getting a mortgage in principle can even help you reassure estate agents that you’re able to afford the home of your dreams, so it’s well worth doing.
It’s also worth remembering that a mortgage in principle is not legally binding, so lenders may change their offers or decide not to offer you a loan at all, should they feel the circumstances have changed. So it’s important to keep an eye on your application and reapply if you make any changes to your situation.
- You’re rejected for a mortgage
After you’ve found a house you like and applied for a mortgage in principle (AIP), it can be a very upsetting feeling to receive a denial letter. If this is the case, you’ll need to find out why your application was declined and try to resolve any issues before applying for a loan with another lender.
Lenders have a long list of criteria they expect borrowers to meet before they approve mortgages, and falling short of any one of these can result in your application being rejected. This can be because you have poor credit, you don’t have enough income or you have too much debt.
Rejections can also be impacted by changes in the market. For example, if interest rates have increased or housing demand has decreased, a lender may tighten their lending criteria to reduce the number of applicants.
The best way to prevent this is to do your research before you apply for a mortgage and make sure you can afford the property you’re looking to buy. Many lenders offer free AIP checks that will give you an idea of whether you can afford to borrow the amount you’re looking for and what type of loan you might be able to get.
You should also check your credit file to make sure everything is up to date. This will include your credit score, which lenders will use to assess how likely you are to pay back the loan.
If you’re rejected, don’t panic – being rejected for a mortgage doesn’t have any negative impact on your credit rating. In fact, it’s quite common for people to have their applications turned down a few times before they get approved.
However, if you’re still struggling to find a mortgage you can afford after getting an AIP, it might be time to consider speaking to a specialist mortgage broker. They will be able to help you understand what went wrong and work out ways to improve your situation.
In some cases, you can even avoid being declined altogether by adjusting your circumstances. For example, if you switch jobs or have a baby, this can cause a lender to reassess your affordability. This is because they may wonder if you’ll be able to continue to meet your mortgage repayments in the future.
- You lose your home to foreclosure
If you can’t make your mortgage payments, your lender may take possession of your home and foreclose on it. The foreclosure process can take months, and in some cases, years.
A foreclosure can have a negative impact on your credit score. According to FICO, it can knock off 100 points or more from your score, and it stays on your credit report for seven years.
There are ways to avoid foreclosure, but the sooner you communicate with your lender about your financial situation, the better. Lenders are usually very understanding and will try to work out a plan to help you get back on track.
In addition, you can talk to your lender about a deed in lieu of foreclosure. This option is less damaging to your credit, and it allows you to keep the house you paid for.
Depending on the state you live in, there may be a special “redemption period” that lets foreclosed homeowners repurchase their homes before the sale of the property at foreclosure auction. This process can take several months and can be expensive, so it’s best to act quickly.
You can also ask your lender about loss mitigation options, such as a loan modification. This can help you restructure your loan to avoid foreclosure and lower your interest rate so that you can keep making your payments.
Once your home is foreclosed, you’ll have to move out. This can be difficult, and you might even have to pay a moving fee.
The new owner of your home will need to give you a specific amount of time to vacate the property. If you don’t comply, you will receive a notice of eviction and law enforcement will remove you from the home.
Some people choose to voluntarily leave their homes before they go through foreclosure, thinking that this will be easier on them financially. However, this can have serious consequences, and it may be a good idea to speak with an attorney before taking this action.
Your mortgage lender may still owe you money, and you can expect to have other debts, such as extra liens or second mortgages, that will still be due when your house is sold at foreclosure auction. The sale of your home will have a negative effect on your credit, and you’ll probably need to find other means of funding for your monthly living expenses.