Approval in principle
An approval in principle (AIP) is an agreement between a bank or lender company and the home buyer proving that they will finance your home upon approval. Typically, an AIP is given to a home buyer through a good and high credit score and low debt obligations.
Once a home buyer has an approved AIP, they have between 30-90 days to buy a home before the offer expires and is no longer active. Applying for an AIP is a tedious process, and homeowners should not have to do it twice.
How does an AIP Help Homebuyers in the process of looking for a home?
An approval in principle is important for home buyers because it allows them to buy a home with knowledge on a rate they have. Without an AIP, homebuyers have no way of knowing what mortgage rate a bank or a lending company can provide during the buying process. This is dangerous and can lead to higher interest rates compared to those addressed through an AIP.
Homebuyers can apply for an AIP through various banks and lending companies. It is recommended that potential home buyers go through different banks and lending companies to find comparable rates. These comparable rates can be used to narrow down a mortgage interest rate and type. If homeowners are not ready to apply for an AIP, they can also use a mortgage calculator to get a better idea of what the mortgage rate may be.
What Happens if You Are Rejected For an AIP?
There are many reasons why companies and banks may reject your application for an AIP. This could be because of outstanding debt or a low credit score which places a lack of trust in lenders and home buyers. It is not the end of the world, though, if your AIP is rejected. Once it is rejected, the applicant can always apply again or try through a different lender.