What is a Mortgage in Principle?
Why do you need a decision in principle, and how do you get one? Here’s what to know.
A mortgage in principle can be one of the first ‘it’s really happening!’ moments when you decide to buy a home. But what exactly is it? We’ll take you through it all, from what you need to prepare, to where to get a mortgage in principle, in our handy guide.
And if you’d like one of our expert advisors to take you through the process, well we’d be happy to do that too.
What is a mortgage in principle?
You might’ve heard a mortgage in principle go by a few names – decision in principle, agreement in principle, or sometimes, it’s shortened to MIP, DIP, or AIP. But fear not – it’s not lots of new jargon you need to learn, they’re all talking about the same thing.
When you’re looking to buy a new home – whether that’s for the first time, or you’re stepping up the property ladder – one of the first things you’ll need to secure is a mortgage in principle. It’s exactly what it sounds like. It’s basically an official document from a lender stating what they think you could afford on a mortgage, and what they’d be willing to lend you – in principle.
It’s not set in stone, and it’s based on the details you give them at the time, so make sure you don’t fib. Usually, they’ll ask you things like how much you earn, whether you’re applying with another applicant, and how much you’ve saved for a deposit. If they run a credit check, it’s usually a ‘soft’ credit check (one that doesn’t impact your overall credit score). Make sure to ask though, as some run ‘hard’ checks that can impact your credit, even at this early stage. Every lender has different questions and stipulations. But what’s true for all lenders is that it’s not a binding offer, but rather a useful indicator.
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is £299.
Why do I need a mortgage in principle?
Firstly, it gives you an idea of a price range when you’re house hunting. You know which houses are worth viewing and which are out of reach. And, when you’re ready to make an offer, you know what your budget is.
It also shows estate agents you mean business – and for some, it’s a necessity to even book a viewing. Many sellers will only consider offers from buyers who’ve already secured a DIP, to avoid wasting time. And in a competitive market, having one in place can make or break your offer.
Is a mortgage in principle the same as a mortgage offer?
No, they’re not the same. A mortgage in principle is not a binding offer. It’s an estimate of what the lender thinks you could borrow from them, but you’d need to meet their specific terms to secure a mortgage offer. To get one of those, you’ll give them a few more details and they’ll look more deeply into your finances and credit history.
How do I get a mortgage in principle?
Well, if you have a specific bank in mind – maybe the one you’re already with, you can go directly to them and apply. Either in a branch, or sometimes, online. Another good option is to use a mortgage advisor. An advantage of this approach is that, from an early stage, they can compare deals from many lenders to find an ideal rate for your circumstances. They also know a lot about the available lenders already, so have a good idea of where you’re likely to secure a MIP. And, they’ll take a lot of the admin off your hands. Usually, you’ll hand over some documents (like bank statements and credit information) and they’ll do the application for you.
What documents do I need for the mortgage in principle application?
Some lenders will ask you very little – just a few questions about your income and address. Others want to know more about you, so it’s useful to get your ducks in a row ahead of time. It’s a good idea to prep details on:
Personal information: Name, date of birth, it’s all stuff they’ll want to know about.
Address history: Where you’ve lived, usually for the last 3-5 years.
Income: Your salary, and if you’re applying with another person, their salary – and any other forms of income, from annual bonuses so side hustles.
Outgoings: Your regular bills, any credit cards you have, loans – this information helps lenders understand what you can realistically afford to pay back.
And remember, this is just for a mortgage in principle. There’s a few more documents you need to gather to get your mortgage offer on the table.
When should I get a mortgage in principle?
It’s a good idea to get a mortgage in principle as soon as you’re ready to get real about buying a house. That way, you know what you can and can’t afford as you’re browsing houses for sale.
And like we said, some estate agents will need one before you can view houses, so you don’t want that to be an unnecessary stumbling block. Most likely, the latest you’ll need one is at the point of offer, as many sellers don’t take offers without an accompanying DIP very seriously.
How long does a mortgage in principle last?
It varies from lender to lender, but usually between 30 and 90 days. If the offer expires and you’re still searching for a home, you may well need to apply for a new MIP. This should be pretty straightforward, unless your financial circumstances or interest rates have changed drastically in that time – and mortgage rates are moving pretty quickly at the moment.
How long does it take to get a mortgage in principle?
Usually, not very long at all! If you apply for a mortgage in principle online, given that there are no major red flags or issues with your finances, you might be able to get one within an hour. Usually, it won’t take any longer than a few days to come through.
So, what issues could crop up that would cause a delay? Well, each lender has different criteria, so it’s key to have a solid application prepped before you submit it.
Why would my mortgage in principle decline?
Although it’s not a complicated process, there are a few hiccups that could mean your application gets rejected. It’s best to avoid a rejection, as some lenders run a hard credit check that can affect your overall credit score. It’s likely you won’t get declined, but if you do, there are a few common reasons, such as:
A mistake on the application
Having an income that’s too low for the amount you’re looking at – or that is viewed as unreliable by a lender
Having bad credit, or too much existing debt
A very recent job change, or too many job changes in a short period of time
Not having enough of a deposit to secure the lending amount
And remember, rejections happen. But for most people, getting a mortgage in principle is a pretty straightforward process. If your income is consistent and your deposit is in place, you can apply within a matter of minutes. It can be great to have a mortgage advisor on hand at this stage, as they have a pretty good idea of what each lender is after, and where you’re more likely to get accepted. And, they can answer any questions you have ahead of the application.
Secure your mortgage in principle
Whatever stage you’re at in your home search – whether you’re looking at lenders or are yet to fill out any forms, we’re here to help. And if you’re ready to make your offer but don’t fancy the faff of comparing thousands of deals across numerous lenders, we can help with that too. An advisor can be a great asset to help you understand which lenders are most likely to approve your mortgage in principle, make sure you submit an application as a strong candidate – and possibly even save the stress of rejection. We’re here to help, so why not let us pick up the admin for you?
