What Is a Mortgage in Principle & How Do You Get One?

A mortgage in principle, also known as an Agreement in Principle (AIP) or Decision in Principle (DIP), is an initial assessment from a lender. It indicates how much they might be willing to lend a prospective homebuyer. This document provides an estimated borrowing capacity, helping individuals understand their potential budget for a property purchase. Obtaining one is a common practice before seriously searching for a home.

Understanding a Mortgage in Principle

A mortgage in principle represents an estimate of the amount a mortgage lender might be willing to provide for a home purchase. It is a pre-approval letter, not a legally binding offer, meaning neither the lender nor the borrower is committed at this stage. This document primarily serves to give an indication of affordability and demonstrates a buyer’s seriousness to sellers and real estate agents.

The process typically involves a “soft” credit check, which reviews an applicant’s credit history without negatively impacting their credit score. This differs from a “hard” credit check, which occurs during a full mortgage application and can leave a visible footprint on a credit report. While a mortgage in principle offers a preliminary assessment, a comprehensive mortgage offer still requires a thorough review of financial details and property valuation.

Information Required for a Mortgage in Principle

To obtain a mortgage in principle, prospective borrowers need to provide specific personal and financial information. Lenders typically request personal details such as full name, date of birth, and address history, usually for the past three to five years.

Income details are also important, requiring information on employment status, gross and net salary, and any additional income sources like bonuses, commissions, or self-employment earnings. For self-employed individuals, lenders may request two years of accounts or an accountant’s certificate. Details of existing debts, such as loans and credit card balances, along with regular monthly expenses like childcare or subscriptions, are necessary to assess overall financial commitments. Finally, the amount of money available for a down payment, known as the deposit, is also required.

The Process of Obtaining a Mortgage in Principle

The procedure for securing a mortgage in principle can be initiated through various channels. Prospective borrowers can apply directly with a bank or building society, utilize the services of a mortgage broker, or complete an application through online portals. Many lenders offer online forms that can provide an immediate decision, often within minutes.

Alternatively, applications can be submitted over the phone or in person through an appointment with a financial advisor. While the online method often yields quick results, engaging with a mortgage broker can sometimes provide a more accurate estimate of borrowing capacity, as they delve deeper into an applicant’s financial situation. Once submitted, the outcome is typically a document confirming the potential borrowing amount, which serves as a useful tool for the next stages of the home-buying process.

Using Your Mortgage in Principle

Once obtained, a mortgage in principle becomes a valuable asset in the property search. It provides a clear understanding of the maximum affordable property price, enabling a focused and realistic house hunt. Presenting this document to real estate agents and sellers demonstrates financial credibility and seriousness as a buyer, potentially giving an advantage over other interested parties.

A mortgage in principle typically has a validity period, often ranging from 30 to 90 days, depending on the lender. If a property is not found or an offer accepted within this timeframe, the document may need to be renewed, especially if financial circumstances have changed. It is important to remember that this initial assessment is a precursor to a full mortgage application, which involves more extensive financial checks and property valuation, and does not guarantee a final mortgage offer.