How reliable is a Mortgage in Principle

For anyone considering a mortgaged property purchase, one of your very first steps will be to secure a mortgage in principle, agreement in principle (AIP) or decision in principle (DIP).

When lenders offer you a mortgage in principle, they are formally agreeing to give you a mortgage up to a specified amount within a given timeframe (normally 60-90 days), based on information that you provide to them.

This means that you have a specific budget available for borrowing, and can use this to put down an offer on a property.

A mortgage in principle doesn’t necessarily guarantee a mortgage approval, however.

How Reliable is a Mortgage in Principle?

A mortgage in principle gives you a clear understanding of the amount you can expect to be able to borrow when it comes to applying for your mortgage, and therefore a budget when searching for a property and making an offer.

Having a mortgage in principle in place can also signal to sellers and estate agents that you are making a serious and reliable offer, which can be a factor in deciding which offer to accept.

Provided that the financial information you supplied to the lender and/or mortgage broker is accurate, and that the property valuation matches up with the offer you put in, a mortgage in principle is generally a reliable indication of your likelihood of being approved for a mortgage by the lender.

Mortgages in principle are not legally binding, however, so lenders can change or update their criteria at any time and reject a mortgage application based on an existing mortgage in principle.

Duration of a Mortgage in Principle

The length of a mortgage in principle varies between lenders but is typically between 30 and 90 days.

When the mortgage in principle expires you may be able to extend it, depending on whether your circumstances and finances have changed, and whether changes in the economy and interest rates have been reflected in the lender’s criteria.

Even within that 30-90 day period, a mortgage in principle is not a guarantee of being approved for a mortgage.

Steps to Obtain a Mortgage in Principle

Obtaining a mortgage in principle is typically a more straightforward process than being approved for a mortgage.

You will need to have your financial and personal information available, including things like your income, outgoings, and proof of deposit.

Once you have gathered the necessary details, it is best to approach an independent mortgage advisor or mortgage broker. They will be able to advise on your specific circumstances and get you the best deal on your mortgage in principle.

Before approving (or denying) your mortgage in principle application, lenders will conduct their own assessments, including either a hard or soft credit check.

Considerations and Common Pitfalls

While obtaining a mortgage in principle is typically an essential step in the homebuying process, there are several things you should consider before you apply.

Relying too heavily on a mortgage in principle can be a mistake for homebuyers. While a mortgage in principle can give you a good idea of your budget and eligibility for a mortgage — and can build your trustworthiness as a serious buyer with sellers and their agents — a mortgage in principle isn’t a guarantee.

Factors that can impact your mortgage in principle translating into an approved mortgage offer include:

• Any changes to your finances or personal circumstances between obtaining your mortgage in principle and applying for your mortgage
• Changed in the economy, interest rates, or the lending criteria between obtaining your mortgage in principle and applying for your mortgage
• Minor discrepancies between your mortgage in principle application and your mortgage application
• Financial issues uncovered through a ‘hard’ credit check as part of the mortgage process, may not have been flagged by the less thorough ‘soft’ credit checks associated with a mortgage in principle
• Surveys or valuations returning significant issues with the property.

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A mortgage in principle can give you a reliable indication of your budget, though they are no guarantee of a subsequent mortgage application being approved.

Mortgage in principle offers can stand for anywhere between 30 and 90 days after approval, so you have time to view properties, make considered offers, and negotiate with sellers and their agents.

It is always a good idea to consult with a mortgage broker or independent mortgage advisor to get an accurate mortgage in principle, which you can then use as a valuable tool in your home buying journey.