How Reliable Is A Mortgage In Principle?
(Last Updated: 14/04/2023)
27/05/2022
192
6 min read
Key Takeaways
- A mortgage in principle (MIP) is the first step in the mortgage process and is highlights how much the lender is prepared to give you. This does not mean that you will definitely get a mortgage offer.
- Although not mandatory, a MIP will help when making an offer, as it will show sellers that you are serious about making a purchase.
- Once you get your decision in principle, you can start the process of buying a house and applying for a mortgage.
- Your mortgage can be declined at any stage. Even if you manage to get a mortgage in principle, special circumstances can cause you to be rejected.
A mortgage in principle is provided by a mortgage lender after an application has been made. It is the first in 3 stages to get a mortgage:
- 1
Mortgage In Principle
23You can get a mortgage in principle by either going direct to a specific mortgage lender or by using a mortgage broker to make your application for you.
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What is a mortgage in principle?
This is also known as an agreement in principle (AiP) or a decision in principle (DiP) and it is a non-binding agreement from your mortgage lender, on the amount that they will lend you.
This is the first stage of buying a property with a mortgage. The bank does a 'soft' or 'hard' credit check (more on that later) and gives a non-binding estimate of the amount they would be willing to lend you based on your income.
You will receive the DiP in writing and are expected to put this forward when putting an offer in on a property - to show that you can, in fact, pay for it.
How likely are you to get a mortgage with a mortgage in principle?
When getting their result, buyers will naturally wonder: how reliable is a mortgage in principle? While this tells you that a lender is prepared to grant you a mortgage, it is not safe to assume that the decision is set. This is merely the first step in the mortgage application process, and should your circumstances change, you might not be able to get a mortgage.
What information do I need to get an Agreement in Principle?
When you apply for your decision in principle you'll need the following information to hand
- 3 years of UK address history.
- Income (e.g. Salary + bonuses, benefits, pensions, rental income, other passive income such as investments).
- Debt (e.g. credit cards, finance and loans).
- Expenses (e.g. Living costs, travel costs, childcare, school fees, other financial obligations).
Different lenders may require other information.
Is a mortgage in principle enough to make an offer?
While a mortgage in principle is not binding, it is a formal estimate from the lender. This comes in the form of an official certificate. You need to know how much you can borrow, on top of your deposit, so that you can shop within your budget. You don't want to waste time on viewing (and falling in love with) a home you that you simply can't afford.
Sellers will not take your offer seriously without it.
All sellers are looking for a smooth transaction. Most need to avoid delays to the sale, as they'll be lining up another property to purchase themselves. This means they are unlikely to accept an offer without a mortgage in principle. If you overestimate your borrowing capacity, you could waste months of their time, only to have to pull out of the purchase.
You also stand to lose time and money yourself, on surveys and searches on a property which turns out to be out of your budget.
Does a mortgage in principle do a credit check?
Lenders generally do what is called a 'soft' credit check when agreeing a mortgage in principle. This is not a full credit check and does not affect your credit score.
Always double check with your lender, whether they are going to do a 'soft' or 'hard' check. Some lenders will carry out a hard check and this could affect your credit score.
Multiple hard credit checks in short succession may affect your credit score. In some cases credit bureaus may recognise when you are simply rate shopping across multiple lenders, but you should not to rely on this.
Most lenders will tell you whether they do sort of hard credit checks in their online FAQs.
What happens after a mortgage in principle?
- 1
This is the fun part, you can start shopping!
Find your perfect home and make an offer based on your mortgage in principle.
- 2
Choose a Conveyancer or Solicitor
It's also time to instruct your conveyancer, as you'll need to provide their details in your mortgage application.
Remember to factor in your conveyancing costs and tax obligations when deciding what you can afford to offer on a house.
Our instant online quote itemises your legal fees and third party costs including Stamp Duty, Land Registry, Property Search Bundle, Online Identification (per person), Priority and Bankruptcy Searches and Lawyer Checker (if required).
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- 3
Mortgage Application
Once your offer has been accepted, you can submit your mortgage application. This will involve a full credit check and the lender will want to value the property.
- 4
Mortgage Valuation
When your offer has been accepted you can pay for your mortgage valuation with your lender.
The lender wants to check that the property is worth what they are lending you, as they'll repossess your house to get their money back if you don't keep up with your mortgage payments.
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Written by:
Caragh Bailey
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
Reviewed by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
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