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When to Use Agreement in Principle

Agreement in principle is a term that many people come across in the course of their lives. It is particularly relevant when it comes to a financial situation such as buying a house or taking out a loan. In this article, we will explore what an agreement in principle is and when you should use it.

Agreement in principle (AIP) is an initial assessment by a lender of whether they are willing to lend you money based on the information you have provided. It is not a guarantee that you will be approved for a loan or mortgage, but it is an indication that you are on the right track. An AIP is based on a soft credit check, which means that it will not affect your credit score.

When should you use an agreement in principle?

If you are planning to buy a house, you should obtain an agreement in principle before you start looking for properties. This will give you an indication of how much you can borrow and how much you can afford to spend on a house. This will help guide your search so that you are only looking at properties that are within your budget.

Similarly, if you are looking to take out a loan, you should obtain an agreement in principle before you start applying for loans. This will help you to determine which lenders are likely to approve your application and how much you can expect to borrow.

An agreement in principle is also useful if you are a first-time buyer. It will give you an idea of how much you can borrow and what your repayments will be. This way, you can make an informed decision about whether buying a property is affordable for you.

In addition, if you are self-employed or have an irregular income, an agreement in principle can be particularly useful. It will show potential lenders that you are a suitable candidate for a loan or mortgage, even if you don`t have a regular income.

Conclusion

In summary, an agreement in principle is a useful tool for anyone looking to buy a property or take out a loan. It provides an indication of how much you can borrow and how much you can afford to spend. Obtaining an AIP before you start looking for properties or applying for loans will save you time and energy, and help you to make an informed decision about your financial situation.