Mortgages in principle vs mortgage offers

Mortgages and the terms associated with them can sometimes blur into one but it is important to know the difference.

What is a mortgage decision in principle and why it is important?

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 have finalised the purchase of your home.

For this, a lender will take some basic information and perform a credit search before coming up with a figure that “in principle” it would be able to lend. In most cases, you can get an agreement in principle for free, and some may be issued within a few minutes.

Mortgage decisions in principle are certainly useful as they can be used to show sellers that you’ll be able to afford the property that you want to purchase, which may give you the edge if they’re deciding between more than one buyer.

However, an offer in principle means just that, it’s not always guaranteed. Once you have it, you need to make a formal application for the mortgage itself.

At this point, the lender has the right to change the details of the deal, or it may decide not to grant you the loan, which could be if your financial circumstances have changed, for example.

How long does a mortgage in principle last?

A mortgage in principle will typically last between 60 and 90 days.

If it expires before you need it, you can always re-apply, but be careful about requesting too many agreements in principle as it only takes a few credit searches to damage your credit score.

Is a mortgage in principle required to make an offer?

It’s not compulsory to get an agreement in principle before you start looking for a house to buy. However, it’s worth bearing in mind that having one can help speed up the home-buying process, prove that you’re serious about the purchase and therefore make you a more appealing buyer.

What is a mortgage offer?

A mortgage offer is the formal document issued by a mortgage lender to a borrower, confirming the lender is happy to advance them the money and forms the binding contract between yourself and the mortgage lender.

The mortgage offer will only be issued once the lender is satisfied that the borrower is creditworthy. Typically this means that you as a borrower have the appropriate income level, are able to make the agreed contractual mortgage repayments, and that your financial conduct history is within lending parameters.

How long does it take to get a mortgage offer?

Once the lender has reviewed all of your information and performed a credit check, it will then want to arrange a valuation of the property you are buying. This can sometimes take a couple of weeks or longer.

After this, the lender will be able to approve your application and formally offer you a mortgage. It can take around 18-40 days for your application to be processed, but if it’s a complex one, this may take longer.

How long does a mortgage offer last?

Most mortgage offers will last between 3-6 months, but this can vary from lender to lender.

Can a mortgage offer be withdrawn?

Unfortunately, a mortgage lender can withdraw their mortgage offer before the mortgage application has been completed, leaving you to bear the costs of failing to complete.

That said, it’s only on very rare and extreme occasions where this might happen, such as the mortgage offer expiring or the borrower’s circumstances changing.