Heard an estate agent mention a Mortgage in Principle? You may have also heard it called an Agreement in Principle (AIP) or Decision in Principle (DIP). This is a statement provided by lenders to inform you of how much they will lend before you’ve finalised your purchase. It gives you an official estimate you can then use during the home buying process.
A Mortgage in Principle is sometimes one of the first things an estate agent will ask for. It shows them and potential house sellers how likely it is you’ll be able to afford the property you want to buy.
While it’s not a legally binding document, estate agents do take them seriously. It’s the bank’s way of pre-approving you for a mortgage by carrying out a credit search and affordability check (using your salary, so it’s important to share correct details).
At Mortgage Synergy, we call them Decision in Principles. So, here’s all you need to know about DIPs and how to get one.
How do I get a Mortgage in Principle?
You can apply for one either:
- Directly from a bank or building society
- Through a mortgage adviser.
As experienced mortgage brokers, we can get you a Mortgage in Principle set up. We can also help you with your full mortgage application, so do get in touch with us to get the ball rolling.
How much does it cost?
It’s typically free to get a Decision in Principle from a mortgage lender or broker. We don’t charge fees at Mortgage Synergy.
How long do AIPs last?
An Agreement in Principle typically lasts three months. If you need a new one (maybe it’s taking some time to find your dream property), it’s easy to do. You’ll just need to provide us with your recent financial circumstances and then we’ll provide you with a new one.
Do I need one?
Having a Decision in Principle is useful if you’re a first-time buyer or you’re looking to buy a second property. It shows the estate agent you’re serious about buying a home and any offer you make is within your means. Many agents will not put your offer forward without one.
We suggest getting a DIP before applying for a mortgage—it’s easy and simple to do. You can often get one within an hour, or in just a few days at the latest. We always do this for clients who are actively looking to buy or move house.
While it’s not a compulsory document to have before you start your house search, there are some great benefits to having a DIP before you go house shopping. It gives you and lenders a clear idea of what you can borrow before you start the mortgage process.
A Decision in Principle reduces the risk of applying for a mortgage that you can’t afford and avoids lenders potentially rejecting your application.
When do you get clients an AIP?
Once we’ve had our initial appointment and gathered all the necessary information for your mortgage, we’ll conduct an affordability assessment. After this, our mortgage advisers will then get you an Agreement in Principle. We normally do this within 24 hours or even the very same day. So, you’ll have everything you need to make an offer on a property.
What are the limitations of an AIP?
Although it’s rare to have an AIP, then have a mortgage application decline, an AIP is limited in some ways. If your income changes, it can mean that your AIP becomes invalid or the amount of money on the AIP might now be, more or less, for example. This is also the case if your credit commitments change.
Another rare occurrence is if you miss some payments on a credit agreement between the time the AIP is created and the time it takes to submit an application. This can have an impact, but it doesn’t happen often.
Does getting a DIP affect my credit score?
When you apply for a DIP, a credit check is often carried out. Some lenders may do a soft search, while others a hard search on your credit file.
A soft search checks your credit file without leaving any acknowledgement of the search on your record. It isn’t visible to lenders, and it doesn’t affect your credit score.
Whereas, a hard search shows up on your credit file as an application for credit. Hard searches don’t always impact your credit score. However, if too many hard searches are made in quick succession, lenders may think you’ve been rejected for credit several times and decide not to lend you any money.
90% of lenders run a soft search when you apply for a Mortgage in Principle. This soft search doesn’t affect your credit score, so you needn’t worry about this when we sort out your DIP.
We always suggest to our clients to regularly check their credit file, anyway. While a DIP won’t leave a trace on your file, it’s a good idea to see where you stand with your finances. This can benefit you in the long run when it comes to your mortgage application. You can iron out any issues and make changes to your credit usage to place you in the best position to get a mortgage deal.
What are banks looking for when running a credit search?
Bank will look for any indicators of adverse credit on your file when conducting a credit search. These are normally things that don’t meet their criteria for lending, such as late payments, defaults and CCJs.
Note: If you do have any of these things on your credit file, don’t worry too much. You can still get a mortgage. Some lenders specialise in poor credit mortgages.
Some banks will look at your actual credit score, but the history is more important. They will use your credit file to match up any loans, credit cards, or car finance, for example, on your file to what we’ve listed on your Decision in Principle.
This is why it’s so important for clients to disclose their full financial history and provide accurate details, so that the bank doesn’t see any discrepancies between your DIP and your credit report. You can even provide us with your credit report, so we can get ahead of the game and check it for you.
Does having an AIP guarantee me a mortgage?
An Agreement in Principle does not guarantee you a mortgage. Lenders hold the right to change the details of the mortgage deal or may decide not to grant you a loan for whatever reason they see fit.
Whether you have an AIP or not, a mortgage is always subject to a full mortgage application. The lender will check your income and conduct full underwriting. They also carry out a survey on the property you’re planning to buy. An AIP is a useful document to have along the way, helping boost the success rate of your mortgage offer.
Saved for a deposit and ready to apply for a Decision in Principle? Get in touch with one of our friendly advisors today.