• Colmore Finance

What is a mortgage in principle?

A mortgage in principle can also be known as an Application in Principle (AIP) or, more commonly, Decision in Principle (DIP).

This is the first stage of your mortgage application process and refers to the mortgage lender or bank reviewing or approving your mortgage ‘in principle’, or ‘in theory’. So essentially, it’s a lender saying they’re happy with lending – as long as x, y and z terms are met.

Your advisor will have gathered enough information regarding your current financial circumstances, to have carried out pre-application checks such as an affordability assessment. Ensuring that, in theory, the mortgage should be approved subject to satisfactory checks done by your advisor and the lender.

Can you be rejected at full application stage if you have a decision in principle?

It’s important to remember that these “in principle” agreements may be altered should the product terms change. When you make a formal “full” mortgage application, the lender will have reserved the right to change the deal or may not grant you the loan if, for example, your financial situation has changed. You may also find that there are better rates elsewhere if the market has changed. This is one of the situations where having an advisor is extremely advantageous – they know how products are changing and the impact this may have on your application.

Why is a Decision in Principle useful for househunting?

Many aspiring homeowners will secure a decision in principle before they put offers in on a house.

This can be beneficial as not only will you have a greater understanding of what you can actually borrow from a mortgage lender, but it may make your offer for a house more appealing to a seller as it shows that there is reason to feel positive that the lender will feel comfortable lending you the desired amount.

If you’re buying in Scotland, you’ll need to have a DIP before you submit a bid on a property.

Are you credit checked for a mortgage in principle?

A DIP or AIP includes a soft or hard credit search, and an often-automated decision* based on the information submitted. The credit check is carried out for two main reasons;

  1. To check that the information that has been submitted to the lender is accurate, and there isn’t any further credit bureau information missing

  2. The mortgage is affordable when all credit bureau information has been checked

A soft search refers to a search carried out, where only you and the mortgage lender you applied to, can see the search on your credit report, often referred to as a footprint.

A hard search means that you, the mortgage lender you applied to, and any other lender or provider with authority to search can see the search on your credit file. Notably, a hard search is more prominent, therefore sometimes an advisor would recommend a soft search if there is any uncertainty about the application being approved due to low credit score, for example.

*The lending decision won’t always be automated, but often is. It can be a manual decision that can take up to 3 days to process, but this will depend on the circumstances and lender.

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Time to take that first step.

It can feel like a big deal, especially if you’re unsure if you’ll be approved – we understand that.

Colmore Finance can guide you every step of the way. Our advisors are whole-of market and regulated by the financial conduct authority.

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