When purchasing a house, one of the crucial stages of the buying process is obtaining an agreement in principle (AIP) from a mortgage lender. An AIP is a document that states the lender would be willing to lend a certain amount of money to the borrower, based on a preliminary review of their financial circumstances.
However, there may be instances where the AIP could be declined, which can be frustrating and confusing for the buyer. A declined AIP means that the lender has reviewed the borrower`s financial details and has determined that they are not able to lend the amount requested.
There can be various reasons why an AIP is declined, including:
1. Poor credit score – A low credit score can be a significant factor in the decline of an AIP. A lender may see a low credit score as an indication of higher risk for the borrower, and may be less likely to lend to them.
2. Insufficient income – If the borrower does not earn enough to cover the mortgage repayments, the lender may decline their AIP. Lenders need to ensure that the borrower can afford to repay the loan.
3. Employment status – Borrowers who are self-employed or have irregular income streams can also be declined an AIP. Lenders prefer borrowers who have a stable and consistent income.
4. Existing debts – If the borrower has a high level of existing debt, this can also impact the AIP. Lenders need to ensure that the borrower can manage their existing debt repayments and the new mortgage repayments.
If an AIP is declined, it does not necessarily mean that the borrower cannot obtain a mortgage. It may be possible to work with the lender to address the issues that caused the decline, such as improving credit scores or reducing outstanding debts.
It is also possible to approach other lenders to obtain an AIP from a different provider. However, it is essential to be selective when doing so, as multiple applications to different lenders can negatively impact credit scores.
In conclusion, a declined AIP can be disappointing, but it is not the end of the road. Understanding the reasons for a decline and taking steps to address any issues can help borrowers get back on track and eventually secure a mortgage.