Agreement in Principle Self-Employed

What information do self-employed borrowers need to provide when applying for an Agreement in Principle?

It’ll be your latest two years’ tax calculations and tax year overviews. While lenders don’t tend to ask for bank statements for the AIP, those are helpful for us. We like to see your credit commitments and outstanding balances, because lenders run a credit search in the background.

How reliable is an Agreement in Principle?

An Agreement in Principle is as reliable as the data that’s put into it. It’s important to be forthcoming with your credit commitments and to fully explain what you have going on in the background.

An Agreement in Principle could decline if we’ve not disclosed something. If everything’s on there and the income’s correct, they are pretty spot on. It’s where a lender takes affordability from before it’s looked at by an underwriter.

How long is an Agreement in Principle valid if I’m self-employed and my income changes?

Generally an Agreement in Principle is valid for six months and will state the date it expires.

If your income changes, it shouldn’t matter. Lenders take the affordability from your tax calculations, which you do every year. The lender just looks at those last two years’ calculations.

If it changes and you’re coming up to submit your tax return, tell us. We can manage that in how we present you to a lender.

Will I need a credit check? Does a Decision in Principle affect credit score?

An Agreement in Principle or Decision in Principle are the same thing and they do involve a credit search. Most lenders do a soft search that won’t affect your credit score. However, certain lenders complete a hard search at the Decision in Principle stage. That would affect your credit score, but generally not for long.

How do I apply for an Agreement in Principle if I’m self-employed? How long does this take?

The best way to apply for an Agreement in Principle is to contact us to arrange it for you. We’ll ensure we see the correct documents to verify your income and credit commitments, which will get you the most accurate decision on an Agreement in Principle.

How long it takes varies depending on the lender. Some Decisions in Principle go to underwriting, but not many. Generally we’d get a decision within about 20 minutes, although it can take up to 24 hours.

You’ve demonstrated how a mortgage broker can help. Is there anything else we need to know?

An Agreement in Principle is fairly straightforward. Just be aware that credit commitments can have a massive bearing on these. It’s always worth telling us what you do have – any credit cards, hire purchases, car finance, things like that.

Let us know that in advance, and we can go into an Agreement in Principle knowing we’ll get you the correct answer, rather than having to go back and forth a few times.

Key Takeaways:

• Self-employed individuals can definitely get an Agreement in Principle (AIP); the process is similar to that for employed individuals, but requires different documentation.
• Self-employed income is assessed using your tax calculations, generally requiring the latest two years to take an average for the affordability assessment.
• Affordability is usually calculated at around 4.5 times your income, but lender metrics vary.
• An AIP is generally valid for six months. If your income changes, it usually doesn’t affect the AIP, but you should inform your broker if you are approaching a tax return submission.
• An AIP involves a credit search, most often a soft search that won’t harm your credit score, but some lenders may perform a hard search. It is crucial to be forthcoming with all credit commitments, such as credit cards or car finance, for the AIP to be reliable.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.