What does mortgage approval in principle mean?

The thought of buying a home can often bring on the worry of applying for and getting approved for a mortgage. Finding a lender offering a suitable home loan, getting all the necessary documentation, and finally putting together the application can get quite stressful. And you’re never sure of what you should do before and after finding the home you want to buy.

Luckily, there are a couple of ways of breaking down the mortgage application process and finding out your chances of getting approved for the loan. 

One of these is the pre-approval, which may involve verifying your finances but not a credit check. Another is a mortgage approval in principle, typically based on a complete assessment of your finances and credit history.

While neither of these confirms that the lender will approve your home loan application once you find your home, you can get a more concrete estimate of your budget with an in-principle approval. A lender will expect your financial situation, credit score, and the kind of home you want to buy doesn’t change significantly between getting the in-principle approval and finalising the application.

How do I get mortgage approval in principle?

When preparing to apply for a home loan, you may have shortlisted a few lenders who offer suitable home loans, perhaps with the help of a mortgage broker. You should check if any of these lenders also provide mortgage approval in principle before applying. Also, applying for an in-principle approval is not too different from applying for the mortgage itself, with only specific documents relating to your home purchase added to the latter process. 

In brief, the documents needed to apply for mortgage approval in principle include identity and income documents, financial statements listing your assets and liabilities, a summary of your usual household expenses, and a rough description of the type of property you want to buy.

In addition, the lender will probably request your permission to access your credit report. Based on this information, the lender will assess your ability to borrow - and repay the amount needed to buy your desired home. 

If you’re approved in principle for the mortgage, the lender will issue a certificate confirming this and inform you of the amount you can borrow. Typically, an in-principle mortgage approval may be valid for 90-120 days depending on the lender, with extensions allowed in some cases. If you change your job or face unexpected expenses, you should tell your lender as this can change the conditions of your in-principle mortgage approval.

What if the lender doesn’t offer in-principle mortgage approval?

It’s possible that the lender you’ve shortlisted doesn’t offer an in-principle mortgage approval, or you can’t find a lender who does offer it. You can check if any of these lenders will offer you a pre-approval, which can at least give you an estimate of the amount you can borrow. Alternatively, you can wait until you find a property before applying for a home loan. However, a buyer with finance is more attractive than one without. 

Even if you don’t get any sort of pre-approval or in-principle mortgage approval, you can use an online calculator to work out your borrowing power. This can then help you set a budget for your property search. You could also consult a financial advisor if you aren’t sure about estimating your expenses or the amount you need to save. 

Consider speaking to a mortgage broker before deciding to apply for a home loan on your own. Brokers usually have an insider’s view of the mortgage industry and may know of other lenders than the ones you’ve considered.

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