What Is a Mortgage in Principle? And How to Get One

A Mortgage in Principle (MIP), sometimes called an Agreement in Principle (AIP) or Decision in Principle (DIP), serves as an initial assessment by a lender to determine your potential borrowing capacity. This document provides an estimated amount a financial institution might be willing to lend you for a home purchase. It functions as an important early step in the home-buying process, offering clarity on your financial standing before you begin actively searching for properties.

Information Needed to Get One

To obtain a Mortgage in Principle, lenders require specific financial and personal details to evaluate your creditworthiness and affordability. You will typically need to provide your full name, date of birth, and address history, usually going back at least three years.

Details about your income are also necessary, including your employment status and gross and net salary. If you have additional income sources, such as benefits, self-employment earnings, or second jobs, these should also be disclosed. Lenders will use this information to assess your ability to repay a mortgage.

In addition to income, lenders analyze your expenditures and existing debts. This includes regular monthly outgoings like credit card balances, loan repayments, and car finance. This review helps the lender understand your overall debt-to-income ratio.

While a detailed credit check process is part of the full mortgage application, for a Mortgage in Principle, lenders will assess your credit history to gauge your financial reliability. Finally, you will need to specify the amount of money you intend to use as a down payment, as this directly influences the loan amount required.

How to Obtain One

You can apply for a Mortgage in Principle through various channels, including online portals, over the phone, directly at a bank or building society branch, or with the assistance of a mortgage broker. Many lenders offer online applications that can provide a decision quickly, sometimes within an hour or a day.

A significant part of this application involves a credit check. For a Mortgage in Principle, most lenders perform a “soft” credit check. This type of inquiry allows the lender to assess your creditworthiness without negatively impacting your credit score, as it does not leave a visible mark on your credit report. In contrast, a “hard” credit check, which is typically conducted during a full mortgage application, can cause a slight and temporary dip in your credit score.

Upon submission of your application and completion of the soft credit check, the lender will usually provide an immediate decision. This indicates the estimated amount they might be willing to lend based on your preliminary financial data.

What It Signifies

A Mortgage in Principle serves as an indication of how much a lender might be willing to lend, based on the financial information you’ve provided. An MIP is not a formal mortgage offer and does not guarantee a specific amount. It is a preliminary estimate of potential borrowing capacity.

The final mortgage offer is subject to a more comprehensive evaluation, including a full application, detailed financial checks, and a property valuation. Lenders will conduct a thorough review of your finances and the property you intend to purchase before issuing a binding offer.

A Mortgage in Principle typically has a validity period, commonly ranging from 30 to 90 days. If you do not find a property and proceed with a full application within this timeframe, the MIP may expire and require renewal. For the buyer, an MIP helps in understanding a realistic budget for house hunting and demonstrates seriousness to sellers and real estate agents.

Using Your Mortgage in Principle

Once you have obtained a Mortgage in Principle, it becomes a practical tool in your home-buying journey. This document helps you establish a realistic budget, allowing you to focus your house hunting efforts on properties within your verified affordability range.

The Mortgage in Principle also plays a significant role in demonstrating your intent to real estate agents and sellers. Presenting an MIP shows that you are a serious and financially capable buyer, which can be particularly advantageous in competitive housing markets. Sellers often prefer offers from buyers who have already taken steps to secure financing, as it indicates a lower risk of the sale falling through.

After identifying a suitable property and having an offer accepted, the next step involves transitioning from the Mortgage in Principle to a full mortgage application. This stage requires submitting more detailed documentation and undergoing a comprehensive financial review by the lender. The MIP provides a strong foundation, streamlining the initial part of the full application process.