What Is a Mortgage in Principle?

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If you are looking to purchase a property for the first time or move to another property in the near future, then you may need a mortgage in principle (MIP), also known as decision/agreement in principle. In this article, we explain what this is, why you might need one and how to obtain one.

What is a Mortgage in Principle?

A mortgage in principle is confirmation from a mortgage lender stating how much they are prepared to lend to you. This is subject to checks the lender will perform if you decide to proceed with the mortgage application. It’s not a final agreement, but it helps potential homebuyers get an idea of their budget to help with their property search.

Why Do You Need a Mortgage in Principle?

A mortgage in principle helps you gain a realistic understanding of your borrowing capacity, so you can establish a clear budget for your property search. Historically, the amount a lender would agree to lend would be based on a simple calculation, such as 4x the applicant’s salary. Nowadays, lenders consider various factors beyond income, such as credit history, existing debts and other financial commitments, to decide whether to lend to an applicant and how much to lend. This helps to prevent wasting any time on homes that would be outside your budget.

A mortgage in principle can also enhance your credibility with sellers as you appear a more serious buyer. Some estate agents may not even agree to a property viewing unless you provide a MIP. If the seller knows you have confirmation (in principle) that a lender is willing to give you the required mortgage amount, your offer is more likely to be accepted. This can give you a competitive edge over other people who are interested in the property.

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How is a Mortgage in Principle Different from a Mortgage Offer?

A mortgage in principle is a preliminary step in buying a home, while a mortgage offer is the final agreement to secure your property financing.

The mortgage in principle is like a lender saying, “We might lend you this much,” based on an early look at your finances, helping you with your property search. On the other hand, a mortgage offer is the official commitment, specifying the approved mortgage amount, interest rate and terms after a thorough assessment. Once accepted, a mortgage offer is a legal agreement, making it the crucial document for actually buying the property.

How Reliable is a Mortgage in Principle?

Getting a mortgage in principle gives you an estimate of how much you can borrow, but it doesn’t guarantee the exact amount. During the MIP process, the lender checks your credit and examines your spending habits, looking for things like late payments or bankruptcy. The MIP indicates the maximum mortgage you could get based on your declared income and verified financial commitments.

However, once the formal application for the mortgage is submitted, other factors like changes to lending criteria or a lower property valuation might affect the final loan amount available to you.

How Do You Get a Mortgage in Principle?

You should be able to get a mortgage in principle quite quickly when you request one from a lender or broker. If you have all of the required information, you may be able to get an instant MIP based on the information you provide.

What Documents Do You Need When Applying?

When you are applying for a mortgage in principle, you do not typically need to provide as much paperwork as you do for a mortgage application. Lenders and brokers usually request income proof, ID and address verification documents for all applicants to maintain their compliance with the Financial Conduct Authority.

Recent payslips are also typically requested from employed applicants and the last 2 years of Tax Calculations and Tax Year Overview documents for self-employed applicants. For ID verification, an in-date passport or driving licence document is sufficient. For address verification, a recent utility/council tax bill or bank statement showing the current address is sufficient.

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How Long Does a Mortgage in Principle Last?

A mortgage in principle will usually be between 30 and 90 days, but this will be specified by the lender. During this time, potential homebuyers can use the MIP to guide their property search, make offers and enhance their credibility with sellers. It’s important to keep in mind that the MIP is not a binding contract, and the actual mortgage terms, including interest rates and loan amount, will be determined when the formal mortgage application is submitted. If the property purchase process extends beyond the MIP’s validity period, it may be necessary to renew or obtain a new one.

Questions You’ll Be Asked

When you apply for a mortgage in principle, the lender will ask you a series of questions to figure out the amount they’re willing to lend you. These questions will usually include the following details:

  • current
  • salary and employment status
  • credit history
  • address history
  • current credit commitments and other outgoings

You may also be asked about the approximate property cost you are thinking of buying and how much deposit you will have for the mortgage

Does Getting a Mortgage in Principle Affect your Credit Score?

When you apply for a mortgage in principle, lenders check your credit file using either a soft or hard credit search. This helps them confirm your stated financial commitments and ensure the accuracy of the MIP’s maximum loan amount. A soft search doesn’t impact your credit file, unlike a hard search that leaves a mark. If you want to avoid hard marks, let your broker know, but generally, as long as there aren’t frequent searches in a short time, your credit file should not be significantly affected.

What Happens After You Receive Your MIP?

Once you have a mortgage in principle, you’ll know the price range of houses you can likely get a mortgage for. This allows you to start searching for properties or, if you’ve already found one, you can arrange a viewing and make an offer.

If the seller accepts the offer, the next step is to get started with the mortgage application. You can then appoint a solicitor and get your paperwork sent to the lender. The lender will conduct a hard credit check as part of the mortgage application process.

Can I Get a MIP from Boon Brokers?

Yes certainly! We can connect with a wide range of mortgage lenders in the UK, thanks to our whole-of-market access. We take the stress out of the mortgage process and strive to find you the best mortgage deal for your specific circumstance. We can arrange the mortgage in principle and if you decide to proceed, handle the mortgage application too. Plus, we do it all for free! You don’t have to pay a single penny for our services.

Call us today on 01508 483 983 or complete our request a callback form to discuss your requirements further.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.