Learn what a mortgage in principle is, how to get one and why applying for a mortgage in principle is a useful start to your house-hunting journey.
A mortgage in principle is also known by a handful of names that you might see used interchangeably. It’s also known as an agreement in principle (AIP), mortgage promise, or a decision in principle (DIP).
A mortgage in principle is a statement from a lender promising how much they’ll pay you if your offer on a house is accepted. Simply put, it’s an estimate of how much you can afford to borrow. It isn’t legally binding, and you may still be refused a mortgage on these terms, but it’s a helpful way of finding out what funds you may be able to access.
Particularly useful for first-time buyers, it shows the estate agent that you’re serious about buying the property and gives the seller peace of mind over what you can realistically afford.
Do I need a mortgage in principle?
A mortgage in principle isn’t always compulsory, but some estate agents and sellers insist that you have one to make an offer on a house. Having a record of what you can realistically afford to borrow reduces the risk that you'll bid on a house that's too expensive.
Consider applying for a mortgage in principle as soon as you've made the decision to join the property ladder. Sometimes you may be able to borrow more than you expected, so you may be able to afford a more expensive home than you first anticipated.
Here are some more benefits of having a mortgage in principle:
- Helps you to commit to the home-buying process.
- Shows what you can realistically afford so you can manage expectations when house hunting.
- Unlocks doors to make an offer on your dream home.
- Estate agents and sellers may take you more seriously.
- Usually quick and simple to get, sometimes taking as little as an hour.
- Puts you in a strong position to make an offer on a house.
- Most lenders will use a soft search, which won’t impact your credit score.
- Reduces the risk of applying for a mortgage and getting rejected.
How do you apply for a mortgage in principle?
It’s easy to apply for a mortgage in principle. Either go to a mortgage broker and see what you may be eligible for or go directly to the lender that you’re interested in. Apply from a lender online, by phone, or by popping into a lender’s branch. It shouldn’t take long and is usually free.
What do you need when applying for a mortgage in principle?
When getting a mortgage in principle, you will be asked for:
- Personal details, including your name, address, and date of birth.
- Previous addresses (up to the last three years).
- Financial information, like income, monthly outgoings, and any credit agreements including credit cards and loans.
What’s the difference between a mortgage in principle and a mortgage offer?
An offer in principle is not the same as an approved mortgage. A mortgage in principle is a promise of what you could borrow, but it’s not a finalized confirmation. It’s a pre-approval letter.
A mortgage offer is an official and legally binding agreement from a lender. It’s the final step in a mortgage application and guarantees the mortgage amount you’re being provided.
Can you be declined for a mortgage in principle?
When you apply for a mortgage in principle, there’s no guarantee you’ll be successful, so it is possible to be declined for a mortgage in principle. If you are declined, you can try again and apply with another lender or broker. Alternatively, you can wait if your financial circumstances have changed.
Reasons you may be declined getting a mortgage in principle include:
- Low or unreliable income.
- Low house deposit.
- Poor credit score.
- Less than three months of employment history.
- You’ve been refused a mortgage or had a home repossessed within the last six years.
- Complicated history of debt.
If you’re declined for a MIP, don’t let this put you off applying for a mortgage in the future. It might be that now is not the right time with your current financial situation.
Usually, lenders carry out ‘soft’ credit searches for agreements in principle. But it’s worth checking as a hard search is visible to other lenders and may impact your credit score. Bear in mind that too many hard searches in quick succession could affect your ability to borrow in the near future.
How long does a mortgage in principle last?
A mortgage in principle is typically valid for between 30 and 90 days, but this depends on the lender. If you haven’t had a mortgage offer accepted by then, you may need to get another mortgage in principle.
It should be relatively straightforward to renew, unless your personal details or the economy has changed. Bear in mind that mortgage rates can vary – and a mortgage in principle (also known as an agreement in principle) is not a guarantee of a mortgage offer. If any of your personal details do change while you have a mortgage in principle, contact your lender to check your MIP is still valid and reapply if needed.
FAQs
How reliable is a mortgage in principle?
It’s important to remember that a mortgage in principle isn’t the same as a mortgage offer, and it isn’t a guarantee of a mortgage. It is useful to gain an understanding of what you might be able to borrow and is sometimes required by estate agents and sellers when you put in an offer on a home.
How much does a mortgage in principle cost?
A mortgage in principle is usually free to obtain from a lender or broker. While this is usually the case, it’s always better to check with the provider if there are any costs to be aware of before you apply.
Can I get more than one mortgage in principle?
Yes, you can apply for more than one mortgage in principle. You may decide to apply for another mortgage in principle if you’ve received a lower figure than you were expecting from your original lender or if you spot a more appealing rate from a different provider.
While there is no official limit, just be mindful that there is a chance that multiple applications could negatively affect your credit score.
Can a mortgage in principle be declined?
Yes, it is possible for a mortgage in principle to be declined. There are a number of reasons why your mortgage in principle application may be rejected, including if you have:
- A low or unstable income, or if you’re unable to show payment history for the last three months.
- A complicated history of debt or an uncleared County Court Judgement.
- Recently changed jobs – or too often.
Find out more about managing mortgages with the Norton Finance Know How blog.
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