A mortgage in principle explained and how to get one
To be sure that you can borrow the amount of money you'll need to buy a property, you can apply for a mortgage in principle.
Below, we explain all the key facts about a mortgage in principle, including whether you really need one and how long they may take to obtain.
What is a mortgage in principle?
Also known as a Decision in Principle (DIP), Agreement in Principle (AIP) or a mortgage promise, a mortgage in principle is a statement from a lender saying that it will lend a certain amount to you before you’ve finalised the purchase of your home.
The agreement shows sellers that it’s likely you’ll be able to afford the property that you want to purchase, which may help your case if the seller is deciding between more than one buyer.
However, it’s important to remember that it is only an offer in principle. When you make a formal application for the mortgage itself, the lender has the right to change the details of the deal, or they may decide not to grant you the loan (if your financial circumstances have changed, for example).
If you leave a long period of time between getting a mortgage in principle and applying for a mortgage, you may also find the details change due to varying interest rates, which means it may be possible to find a better deal elsewhere.
Will it affect my credit rating?
Lenders are likely to make credit checks when you apply for a mortgage in principle. Some lenders may make “soft searches” and others may make “hard searches”.
A soft search records the credit check as an enquiry, whereas a hard search will mark that you’ve made an application for credit. Having too many hard searches on your credit report could suggest to lenders that you may have difficulty in repaying your loans.
It’s a good idea to check with a lender whether they run a soft or hard search before you apply for a mortgage in principle.
We also recommend checking your credit report and credit score beforehand, which will allow you to view your credit history and give you an indication of how creditworthy a lender may find you. You can check your credit score here for free.
Does it guarantee a mortgage?
Although referred to as a “mortgage promise”, getting a mortgage agreement in principle does not actually guarantee you the funds, because at this stage it is only the lender’s system that has approved you.
You will still need to produce the necessary documents to verify the figures you have been approved on, and also have the lender’s underwriting team assess the application to formally sign it off.
This official mortgage offer, where you can be sure the lender is happy to give you the money, won’t be issued until after the full application and the property has been approved as suitable by a local surveyor.
Doesn’t this mean the decision in principle is not needed?
A mortgage in principle is still an important part of the process since it is needed for the lender’s system to approve you.
Acceptance, in this case, is always a good indication that the official application will be approved, but good brokers know that cases need packaging and presenting to the lender in the right way, especially if there is adverse credit or other non-standard circumstances involved.
A mortgage in principal approval certificate is a good way of ensuring the estate agent acknowledges the viability of your offer of purchase.
Do you need a mortgage in principal to make an offer?
A decision in principle is not essential when making an offer on a house, but estate agents and sellers are more likely to accept offers from those that already have a decision from a lender.
This is because it reduces the chance of delays in the selling process.
How long does it take to get a mortgage in principle agreement?
The amount of time it takes depends on a number of factors, but it can be an immediate decision for a lot of borrowers.
Typically, the first limiting factor will be gathering all the necessary documents for the adviser to verify income and identification.
Second, it’s finding the right lender for your circumstances. This can be quick and easy for straightforward applications where borrowers are employed, borrowing under four times their income and have a good credit score.
In this case, a mortgage in principle can be granted within a matter of minutes. For anyone who is considered outside of this standard, a mortgage in principal can take more time to approve because researching for the best lender may be time-consuming.
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