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Agreement in Principle Formula:
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An Agreement in Principle (AIP), also known as a Decision in Principle or Mortgage in Principle, is a certificate from a lender indicating how much they would be willing to lend you based on basic financial information. It helps you understand your borrowing capacity before house hunting.
The calculator uses the simple formula:
Where:
Explanation: Lenders typically use income multiples to determine how much they're willing to lend, considering your ability to repay the mortgage.
Details: An AIP demonstrates to sellers that you're a serious buyer with financing arranged. It strengthens your position when making offers and helps you focus your property search within your budget.
Tips: Enter your annual income and the affordability multiple offered by lenders. Typical multiples range from 3x to 5x depending on the lender, your credit score, and other financial factors.
Q1: What is a typical affordability multiple?
A: Most lenders use multiples between 3x and 5x annual income, but this can vary based on credit history, employment status, and other debts.
Q2: Is an Agreement in Principle guaranteed?
A: No, an AIP is not a guaranteed mortgage offer. The lender will still conduct full underwriting before issuing a formal mortgage offer.
Q3: How long does an AIP last?
A: Typically 60-90 days, after which you may need to renew it if you haven't found a property.
Q4: Does getting an AIP affect my credit score?
A: Most AIPs involve a soft credit check that doesn't affect your score, but some lenders may do a hard check.
Q5: What other factors affect my borrowing capacity?
A: Credit history, existing debts, monthly expenses, employment stability, and deposit size all influence how much you can borrow.