Last blog I shared our adventures in house hunting. We saw three properties and liked one of them enough to make an offer. Unfortunately, after a few days deliberation we received news from the estate agent that the vendors had moved forward with somebody else’s offer.
Having reflected on it, I’m not too surprised at this outcome and there are definitely a few things we’re going to do differently next time.
Do your homework!
Don’t just research the home that you’re viewing before making an offer. Spend time learning about the neighbourhood. How much have similar properties in the area sold for? How long ago were they sold for? How long were they on the market before selling?
We went to the viewing not really knowing what to expect or really what we were looking for. The house had a few features that made it particularly desirable (big garden and garage) and there weren’t many other properties for sale like it in the area. It had only been on the market two weeks when we jumped in and offered 7% lower than the asking price. The estate agent warned us that there were other offers that were higher but we thought blind optimism could win the hearts of the vendors.
How low will the vendor go?
The seller has probably done their research when putting their home on the market and has their own bottom dollar that they won’t go below. Perhaps they require a certain amount in order to afford their next house, they are mortgage-free and can afford to wait for a higher offer or they are going through a divorce or other major life event. Maybe they just believe that the property is worth more than your offer. At this stage, you can return with a higher counter offer.
Not having an Agreement in Principle
Our offer was made rather hastily so we didn’t have an AiP (despite me writing a post about them recently!). Thankfully we were able to get one quite quickly so this aspect did not let us down.
Once you put your offer in, all you can do is wait and see if the vendor will accept but with a bit of pre-planning and research, you will be able to increase the chances of your offer being accepted.
The more I learn about the home buying process, the more I think it’s all about the acronyms. In most of the research I’ve done, the first step of the home buying process, before you even begin to view properties, is proving that your lender MIGHT lend you the money to buy a house. This is called an Agreement in Principle (AIP), but also can be called a Decision in Principle (DIP), Mortgage Promise or Lending Certificate.
What is an Agreement in Principal?
An Agreement in Principal (I will refer to them as AIP for the rest of this post) is a certificate or statement from a lender to say that ‘in principle’ they would lend a certain amount to a particular prospective borrower or borrowers based on some basic information. Most providers will require you to complete a form detailing your income and expenditure and the amount you think you would like to borrow. They may also conduct a credit check.
Although an AIP doesn’t give any guarantees over what size of mortgage you may be offered once you formally apply, it will give estate agents some peace of mind that you can potentially afford the properties that you are viewing.
That all sounds good, where do I sign up?
Hang on just a minute! Many banks boast that you can get an AIP from them in just a few clicks however if they do a ‘hard’ credit check, it will leave a footprint on your credit file, regardless of whether you go on to borrow from them. Too many credit checks on your file can make it hard for to arrange a loan, and the fact that a lender has checked your file stays on record for six years. Some lenders will leave a soft footprint but they are few in number and may not be the right one for you.
Why should I get an AIP?
Theoretically you could skip the AIP and speak directly with a mortgage broker as they aren’t compulsory but there are a few benefits to getting one.
- If you have a poor credit history and aren’t sure if you would be accepted for a mortgage, the AIP can give you reassurance about your borrowing prospects.
- It can give you more credibility with estate agents as it shows that you can move ahead in the process if the offer you make on a property is accepted.
We are looking at mortgage brokers now with the view of starting to look at properties from next month and will probably have a chat with the broker before applying for an AIP.
I’d love to hear your experiences with AIP’s. Did you find it useful in your house hunt? Were you able to get a mortgage without one?