What does 'Pre Arranged Mortgage' mean when buying a property?

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Pre Arranged Mortgage

If you need a mortgage to buy a property then you can do some advance preparation before you start viewing flats or houses and save yourself some serious time and money later. You do this by agreeing with a lender now how much you can borrow and at what terms - i.e. what interest rate.

There are a whole raft or reasons why you should do this:

  • It shows estate agents you are a serious buyer so they'll call you first.
  • It ensures you know how much you can actually afford so you look at the right properties.
  • You can compare mortgage offers in your own time making sure you plump for the best deal.
  • It saves time when moving from Sale Agreed to Exchange of Contracts

There are two ways to do this

  • Agreement In Principle (AIP) - you tell the lender about yourself and they say "If that's true we would lend you £X if we think the property you choose is worth it".
  • Pre Arranged Mortgage (PAM) - you prove to the lender your financial position (current pay, current debts, credit rating, etc.) and they say "We will lend you £X if we think the property you choose is worth it"

Getting an Agreement in Principle is fairly easy. Most banks and mortgage lenders off their service online where you plumb in the figures (what you earn, how much you spend on loan repayments, etc.) and they'll give you an instant maximum loan amount which is your Agreement in Principle.

Pre Arranged Mortgages are less well known. Even lenders that offer PAMs don't always shout about them. You really have to knock on their door and say "Do you do PAMs?". I'd call it a bit of an industry secret.

Why would you want a PAM?

If an Agreement in Principle is so easy to get then why would you want to mess around with a Pre Arranged Mortgage?

Firstly it will throw up anything that is unexpected. I knew one buyer who really thought he was crystal clean when it came to his credit history but when he applied for a PAM it threw up an issue. A dispute he had had four years ago with a car leasing company had affected his credit record and he wasn't even aware of it.

Getting the heads up early he was able to resolve the issue and get it removed from his credit history. It took several weeks but had it happened after he had made an offer on a property the vendor might have decided to sell to someone else and he would have wasted a lot of time and money on surveyors and solicitors.

I should point out that you can access your credit rating and resolve issues even before getting a PAM via credit agencies like Experian.

But there are other reasons I recommend PAMs.

  1. It saves time between Sale Agreed and Exchange of Contracts and its time which kills deals.
  2. Its just one less stack of paperwork to juggle after your offer is accepted.
  3. You shine as a buyer in the eyes of switched on estate agents - they know you are ready to roll and really good for the money.

Given a choice between an Agreement in Principle and a Pre Arranged Mortgage, I recommend a Pre Arranged Mortgage every time.

Yes, its not as much fun as going out viewing but it will make your purchase a whole lot more likely to happen when you've found that perfect place.

You can find out all the tricks to becoming a buyer who stands out from the crowd in my ebook How to Really Buy a Property.

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"... than one financial adviser; How the same mortgage from the same bank can be cheaper in two different places; The difference between Agreements in Principle and Pre Arranged Mortgages; What could be in your history that will stop you getting a mortgage; Why the best mortgage deal may not be..."
"... by an Agent then as long as the adviser is qualified, don't shy away, welcome it! If you aren't offered, ask. - Agreements in Principle (AIPs) and Pre Arranged Mortgages (PAMs) - - Agreements in Principle (AIP) - Most buyers are now aware of the Agreement in Principles (AIPs). These are..."
"... you can be completely confident when you offer that you can afford it and the process will proceed smoothly and without stress. - Pre Arranged Mortgages (PAM) - This is offered by some financial advisers and allows you to be credit checked and ready to go without having to bully your bank..."

"... Bad Agents. For now its worth knowing the two documents that are requested the most: An Agreement in Principle or Pre Arranged Mortgage - see Sorting Out Your Mortgage - to show you can afford the property A copy of your bank statement to show you can afford the deposit An Agreement in..."
"... you to buy in blocks more than four stories high, others will only loan on properties with more than two bedrooms, and so on. A Pre Arranged Mortgage (PAM) For information on PAMs and how they can speed up your purchase see Sorting Out Your Mortgage Bank Statements If you are buying..."

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