Mortgage Declined After Agreement In Principle
One thing most people don’t know about the mortgage application process is that most things aren’t final, even when you think they are.
Rejections are a common occurrence after an agreement in principle but this doesn’t mean all hope is lost so here’s a more detailed look on what to do next and how you can improve your chances of getting accepted moving forway.
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What Is An Agreement In Principle?
An agreement in principle (AIP), otherwise known as a decision in principle, is a provisional mortgage agreement between a borrower and a mortgage lender. It provides an understanding as to how much one will be able to borrow towards the purchase or remortgage of a property.
With an agreement in principle, the core details of the mortgage agreement are established and communicated, so that both parties are fully aware of what the agreement will mean for them.
Think of this as a tentative offer and not necessarily a full mortgage approval, as most mortgage lenders still haven’t conducted an extensive test of their criteria at this stage.
Why Get An Agreement In Principle?
Agreements in principle may not necessarily give a guarantee on the mortgage amount that you’ll receive, however, they’re still an important part of the mortgaging process.
When they give the initial estimation of your borrowing potential, you’ll have an idea of the price range you should stick to shopping around for houses, thus narrowing down your search and making it easier in some senses.
In addition to this, some estate agents won’t take a house off the market if you don’t have an agreement in principle, primarily because they don’t have a guarantee that you’ll even be able to afford the house in the first place.
Even if you get an agreement in principle and your mortgage application is rejected, it gives you a chance to improve the information on your credit report before re-applying. It’s also worth noting that many lenders offer free online AIP checks, you’ll receive the results within minutes and both sides avoid wasting each other’s time.
How Reliable Are Agreements In Principle?
The fundamental issue here is that AIPs are not necessarily a guarantee that you’ll be offered the mortgage. They function as a good indicator of your borrowing potential but the final decision on your mortgage application largely hinges on your financial situation at the time you apply.
Furthermore, mortgage lenders may perform a reassessment if your home is seen to be high risk due to it, for example, being in a dangerous neighbourhood or area that’s prone to flooding.
So, despite an agreement in principle being a positive sign that you haven’t been outright rejected, you still can’t consider that it means your mortgage application has been accepted.
Reasons For Being Declined After Approval
Having your mortgage application declined after an agreement in principle can be both upsetting and confusing for many, particularly if you feel strongly that you did everything right and can afford the proposed agreement. The reasons why you’ve been rejected may not be immediately clear but here are some of the most common reasons for being denied:
Your income
Your income is one of the main factors that lenders look to see if you’re a viable candidate. They look at this as they want to make sure you actually have the financial means to keep up your end of the agreement.
If your income differs from what is listed on the different on the application, then rejection is highly likely. A lender may even request that you provide additional proof of income or re-apply. Always make sure you declare a change in income.
Too many credit applications
If you’ve applied for many different forms of credit, then this could negatively impact your mortgage application. While a lender performs the first round of affordability checks for an agreement in principle, they’ll check your full credit history. If they determine that your debt-to-income ratio is too high, then they may not give you the loan.
Recently changing your job
If you’ve recently changed jobs or are now self-employed, then a mortgage lender will pose lots of questions about whether you’ll be able to keep up with the mortgage repayments. When it comes to you changing jobs, they’ll primarily look at how long you’ve been in both your new and old position.
Missed payments
If for some reason you’ve failed to make payments on one or more of your credit agreements, that could be detrimental to your mortgage application. Lenders are fond of stability and if they see that you’ve been missing payments, they’ll more than likely assume that you’re overstretching yourself financially.
Will your credit score be affected?
Luckily, your credit report will not be affected, should your application be declined after an AIP, nor will it negatively impact future applications. Most lenders will perform a hard credit check before issuing an agreement in principle, other lenders won’t see this on your file.
What To Do After Being Rejected With An AIP?
After receiving a rejection with an AIP, you need to bear in mind that you’re not the only one who goes through such and that it happens for a number of reasons. Here’s what you should do after your application is declined:
Avoid re-applying immediately
Most people make the mistake of wanting to get back on the saddle immediately after being knocked off, this is not the best approach. Rushing to apply again can negatively affect your application. A lender can change their mind for a number of reasons and the most likely scenario if you apply again immediately is that one of the reasons will resurface.
Take your time before re-applying, as this will allow you to re-strategise. If possible, get in touch with the lender to ask them why exactly you were rejected and what you can do to better your chances of being accepted.
Get a mortgage broker
Mortgage brokers, such as Loan Corp, have the requisite knowledge and expertise to turn your mortgage application around. We do this by finding out all the facts, providing comprehensive advice, and devising a bespoke solution.
A common practice amongst mortgage brokers is assessing both the application and rejection to see if there are any grounds for an appeal. If renegotiations are initiated, a mortgage broker can make your life easier by taking the lead on them.
Lastly, mortgage brokers may also save you time and money by determining whether you’re better off just trying an alternative mortgage provider and can then search the market to find a mortgage lender that best aligns with your needs and unique situation.
How To Improve Your Chances Of Being Accepted
As you know by now, lenders take a lot of factors into account before they approve or reject an application. Here are some ways you can improve the chances of your application or re-application being approved:
Keep your debt low
According to research, a debt-to-income ratio that is below 50% is significantly less likely to cause rejection, so the lower, the better. An easy way to track this is by using a debt-to-income calculator to determine where you stand in this regard. Weigh monthly payments such as student loans, rent, and credit card payments against your gross income.
Improve your debt-to-income ratio by paying off debts and increasing your income.
Build good a credit file
Bad credit won’t do you any favours if you’re applying for a mortgage, even if you have an AIP. Nowadays, the higher your credit score, the higher your chances of being approved. Besides just helping you get approved, having a good credit history can help you get favourable rates on an agreement.
Do your best to track your credit score and find ways to improve your credit such as paying your bills on time, keeping balances low, and regularly reviewing your credit reports to ensure there are no errors.
Save up
This is one of the simplest things that you can do to improve your chances of being approved. Lenders like low loan-to-value (LTV) ratios, as it tells them that their investment is protected. The LTV ratio compares how much you’re borrowing against the value of your home or collateral.
If you save up enough money for a bigger downpayment, then you’ll have a lower LTV.
Revive Your Mortgage Application With Loan Corp
At Loan Corp, we have a team of mortgage brokers who know exactly what to do in various mortgage situations, especially those where the application has stalled after or during an agreement in principle.
Additionally, we have a long list of industry contacts and robust relations with specialist lenders, so you can get an agreement, even if you have a poor credit history.
Mortgages get rejected for many different reasons but a mortgage broker can significantly improve your chances of being accepted. If you decide to partner up with us, the mortgage application process will feel much easier and stress-free. Get in touch with us through our online form or call us on 0808 301 9509.
FAQs
How often are mortgage applications declined after an AIP?
There are no exact stats on how often mortgage applications are rejected after an AIP. After being offered a decision in principle, the chances of receiving a mortgage offer are significantly higher, conversely, it’s not uncommon for deals to fall through during this stage. This typically happens because of the additional checks that lenders carry out after an AIP.
How soon can you apply for a mortgage after being declined?
This is a very tricky question and there is no fixed answer. How quickly you can re-apply solely depends on whether you’re applying through other lenders or how quickly you can fix the issues on your initial application if you’re applying through the same lender.
If you so choose, you can make another mortgage application within either a matter of weeks or months.
Do I have to accept a mortgage offer?
A mortgage offer is legally binding but only once you’ve signed it. Before that, you are well within your right to renegotiate the terms of the contract or outright reject it. After signing a mortgage agreement, changing the terms would be an incredibly difficult task, so always make sure you’re completely happy with a contract before agreeing to it.
An AIP is also not legally binding, so neither party is obligated to follow through on it. If you feel a lender is pressuring you into accepting an offer, then you should report them to Financial Conduct Authority and seek other mortgage lenders.
Which age group has the most mortgage application rejections?
According to statistics, four in 10, or 41 per cent of 18 to 24-year-olds have experienced a mortgage application rejection before buying their first home. In comparison, only 15 per cent of 35 to 44-year-olds have experienced rejections. So, age is a factor when it comes to mortgage applications.
Can I get a mortgage with bad credit?
Although doing so may be incredibly difficult, you can indeed get a mortgage with bad credit history. Knowing your credit score comes in handy when it comes to mortgage applications, so be sure to use an online resource to check your credit score.
Beyond just knowing your credit score, it’s also advisable that you consult a mortgage broker if you have bad credit and want a mortgage. Mortgage brokers have the necessary specialist knowledge to pair you with a lender that aligns with your needs.
Final Thoughts
Ultimately, getting your mortgage approved depends on how well you meet a lender’s criteria. If you get rejected after receiving an agreement in principle, then do your best not to feel disheartened, as it doesn’t mean that you’ll never get your dream home. It simply means that you have to go back to the drawing board.
It might not be easy to want to re-strategise after receiving a rejection, so do yourself a favour and contact us, and let a mortgage broker do the hard work for you.