What is a mortgage in principle?
Also known as a ‘Decision in Principle’ (DIP), ‘Mortgage Promise’ or an ‘Agreement in Principle’ (AIP), a mortgage in principle is a certificate or statement from a lender to say that ‘in principle’ they would lend a certain amount to a particular prospective borrower or borrowers based on some basic information.
In almost all cases a Decision in Principle will be undertaken by a lender prior to any application being made. The information that you provide will allow the lender to check your credit file helping them establish whether you are mortgageable and if they are happy to lend the amount you require.
A Decision in Principle can be submitted at any point in your journey in obtaining a mortgage.
If you are looking to purchase a house then an estate agent will often want to ensure that when you are making your offer that you will be able to obtain a mortgage and for the amount you require, on top of your deposit, in order to proceed to completion. It is important that you have taken advice on products and lenders that you might proceed with as a DIP can leave a soft or hard footprint on your credit file.
In terms of remortgaging there is less external requirement to have this information so a DIP would be submitted once the right lender and product has been recommended to you.
DIPs can be confusing, but Which? Mortgage Advisers can provide you with completely independent and impartial advice, tailored to your individual circumstances, about when and who you should look to be completing a DIP with. As completely independent mortgage brokers, if you decide you’d like to take out a DIP we can also arrange one for you.
In general terms, there are a few pros and cons to taking out a mortgage/decision/agreement in principle:
The pros of getting a Decision in Principle
- Having a Mortgage in Principle to show that you can in theory afford to buy a property could make you a more attractive buyer and stand you apart from other prospective buyers
- If you have had credit problems in the past, or if you have a limited credit history and aren’t sure what a bank or building society might lend to you, a DIP could give you added reassurance around your borrowing prospects
The cons of getting a Decision in Principle
- A DIP is not a guarantee, and when you go through the full application process and the lender looks at your earnings and credit history in more detail they may decide not to lend to you
- Some lenders can offer DIPs that only leave a soft imprint on your credit file, which does not have an impact on your credit rating. But most credit application searches will leave a hard footprint, and although one or two may not impact your score too much, if you have several credit application searches over a short time period this could be detrimental to your credit score and negatively impact your chance of getting a mortgage.
- You might secure a mortgage in principle from a particular lender as they have a good deal on offer, but then not be at the point of taking out a mortgage until 2-3 months later when their rates could have changed or a different lender is offering a better deal
Other factors to take into account
Your Estate Agent might encourage you to get one so that they can be sure that they are prioritising prospective buyers who have the best chance of being secured a mortgage