What is a mortgage in principle (MIP)? From SAM Conveyancing. A magnifying glass scrutinises a stack of coins beside a wood-block toy house.
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What is a mortgage in principle (MIP)?

Caragh Bailey
27/05/2022
6
5 min read
Most people cannot afford to buy a home outright. They borrow the rest, in a loan called a mortgage (this means the loan is secured on the property - the bank can repossess the house if you do not pay your mortgage).

Whether and how much they will lend you, is a complex calculation which cannot be finalised until you have put an offer in on a house and it has been valued.

So, how do you know how much you can borrow and therefore spend?

When you have saved your deposit and you're ready to start looking at properties, you can apply for an agreement in principle, to see how much you can borrow.

What is an Agreement in Principle?

An agreement in principle (AiP) is another term used to describe a mortgage in principle (MiP) or a decision in principle (DiP).

This is the first stage of buying a property with a mortgage. The bank does a 'soft' or 'hard' credit check (more on that later) and gives a non-binding estimate of the amount they would be willing to lend you based on your income.

Why apply for a mortgage in principle?

You need to know how much you can borrow, on top of your deposit, so that you can shop within your budget.

You don't want to waste time on viewing (and falling in love with) a home you that you simply can't afford.

While a mortgage in principle is not binding, it is a formal estimate from the lender. this comes in the form of an official certificate.

Sellers will not take your offer seriously without it.

All sellers are looking for a smooth transaction. Most need to avoid delays to the sale, as they'll be lining up another property to purchase themselves.

This means they are unlikely to accept an offer without a mortgage in principle. If you overestimate your borrowing capacity, you could waste months of their time, only to have to pull out of the purchase.

You also stand to lose time and money yourself, on surveys and searches on a property which turns out to be out of your budget.

Does a mortgage in principle affect your credit score?

Usually, no. Lenders generally do what is called a 'soft' credit check when agreeing a mortgage in principle.

This is not a full credit check and does not affect your credit score.

Always double check with your lender, whether they are going to do a 'soft' or 'hard' check. Some lenders will carry out a hard check and this could affect your credit score.

Multiple hard credit checks in short succession may affect your credit score. In some cases credit bureaus may recognise when you are simply rate shopping across multiple lenders, but you should not to rely on this.

Most lenders will tell you whether they do sort of hard credit checks in their online FAQs.

What information do I need to get an Agreement in Principle?

When you apply for your decision in principle you'll need the following information to hand
  • 3 years of UK address history.
  • Income (e.g. Salary + bonuses, benefits, pensions, rental income, other passive income such as investments).
  • Debt (e.g. credit cards, finance and loans).
  • Expenses (e.g. Living costs, travel costs, childcare, school fees, other financial obligations).

Different lenders may require other information.

What happens after approval in principle?


    1
    This is the fun part, you can start shopping!
Find your perfect home and make an offer based on your mortgage in principle.

    2
    Choose a Conveyancer or Solicitor
Its also time to instruct your conveyancer, as you'll need to provide their details in your mortgage application.

Remember to factor in your conveyancing costs and tax obligations when deciding what you can afford to offer on a house.

Our instant online quote itemises your legal fees and third party costs including Stamp Duty, Land Registry, Property Search Bundle, Online Identification (per person), Priority and Bankruptcy Searches and Lawyer Checker (if required).

Fixed Fee | No Sale No Fee | On all Lender Panels

    3
    Mortgage Application
When your offer can been accepted you can submit your mortgage application. This will involve a full credit check and the lender will want to value the property.

    4
    Mortgage Valuation
When your offer has been accepted you can pay for your mortgage valuation with your lender.

The lender wants to check that the property is worth what they are lending you, as they'll repossess your house to get their money back if you don't keep up with your mortgage payments.

Frequently Asked Questions

    1

    Find a house and make your offer

    3

    When your offer is accepted, submit your mortgage application


The lender may:
  • Grant your mortgage;
  • Grant it under certain conditions; or
  • Refuse to grant a mortgage against this property

Conditions are usually based on potential defects which have raised concern - your lender may require you to have further surveys such as a full structural survey.

Your various surveys, reports and searches may reveal defects with the property which enable you to negotiate a lower price with the seller, to meet a lower valuation made by the lender's valuer.

If the mortgage is refused, you may have to look for another property and reapply for a mortgage.

    5

    Receive your mortgage offer

    6

    Contracts & Enquiries

    7

    You are ready to exchange


NB In rare cases a mortgage offer can be withdrawn at any time up until textcompletion.

Read more in our article on the full mortgage process
A decision in principle (DiP), also known as a mortgage in principle, or agreement in principle, is a non-binding agreement from your mortgage lender, on the amount that they will lend you. It is based on your income and a preliminary credit check.

You will receive the DiP in writing and are expected to put this forward when putting an offer in on a property - to show that you can, in fact, pay for it.
 
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