Getting a Mortgage in Principle
A Mortgage in Principle, or MIP for short, is also known as an Agreement in Principle, Decision in Principle, Mortgage Agreement in Principle, or a Mortgage Promise. A MIP is a personalised document confirming an amount of money, which a lender believes they would be able to lend you, based on the information you’ve shared at this stage. And even though it isn’t a legal requirement, increasingly agents will ask that you have one.
What is a Mortgage in Principle?
A Mortgage in Principle is specific to you and, together with your deposit, it can give you an indication of the property price range you can search within. So you can search for your new home with more confidence.
A MIP is normally valid for up to 90 days, but different lenders’ criteria and rules will differ.
What it isn’t
That means, when you’ve found your dream home, had an offer accepted, and want to start the house buying process, you’ll still need to make a full mortgage application. If a lender or mortgage adviser has secured you a MIP, they might be able to use the information you initially provided to complete some of the mortgage application details. Bear in mind they’ll want to check it’s still correct.
A MIP doesn’t guarantee your loan, as it’s not a mortgage offer. And, if the lender finds something you haven’t mentioned before, which negatively impacts your ability to get a mortgage, they could change their mind. That could be whether they will lend to you at all, how much they might lend, what the interest rate might be, or the term of the mortgage
Why get a Mortgage in Principle?
Although MIPs aren’t essential, they’re increasingly very useful. Why?
If you get a Mortgage in Principle during your property search, you can feel more reassured about the outcome of a full mortgage application. That’s because, as long as there’s been no major change in your situation, or economic factors like interest rates, or the economy more broadly, you’ve already shared a lot of your financial details, and the lender will have checked your credit history.
Simply put, a MIP is a good indication of your affordability and creditworthiness for a specific amount of money.
A MIP gives an indication that you can actually afford the property you’re interested in, and so gives you more credibility with estate agents and sellers or vendors. This is especially useful in competitive areas where things move quickly. Agents will appreciate knowing you’re in a position to move ahead if your offer is accepted.
Arranging a MIP also requires some effort on your part, which helps you come across as a committed and serious property hunter.
The house buying process in Scotland is slightly different, and although it’s still not a legal requirement to have a MIP, it’s even more strongly viewed as an indication of your intentions.
Things to be aware of:
As part of getting a MIP, your lender or mortgage adviser will have to run a credit check. Don’t worry, they’ll ask for your consent first.
Most lenders use a ‘soft credit check’ for a MIP application, which isn’t recorded on your credit score. However, if the lender runs what’s known as a ‘hard check’, it will leave a footprint. And this could impact your credit rating if you apply for several within a short period of time.
So, it’s best to check with your chosen lender which approach they use.
How to get a Mortgage in Principle
As with a full mortgage offer, you can either apply through a mortgage broker, or direct with a lender.
The broker or lender will need basic personal details, as well as information on your income and expenditure.
At this stage, they may not require supporting documents like proof of your income, but it will be useful to have these available just in case. It’s also likely they won’t go into as much detail about your expenditure as they would with a full mortgage application. Nevertheless, it would be useful to have some key details handy (for more information, see submitting your application).
For many borrowers, it can be done in a matter of minutes after the initial fact-finding which will involve gathering some initial information – as well as reviewing your credit history.
If the lender or mortgage adviser needs any extra information or documents they should get back to you within 24 hours.
A MIP tends to be free, but there are advisers who charge for this. It’s best to check before asking for one.
What can impact a full mortgage application?
Since a MIP isn’t a guarantee that you’ll get a mortgage offer, it’s good to know what factors may impact the lender’s decision when it comes to the full application.
Any change in your personal circumstance, such as reductions in your income, or increases in your outgoings, may impact how much you can afford to borrow.
For example, if you lose or change your job, take out a personal loan, your family situation, or number of dependents change, or you go on parental leave. These could all affect whether you can get a mortgage.
This involves the lender becoming aware of information you didn’t tell them during the application for your MIP. Particularly information that can affect what you can comfortably afford to borrow. For example, you’ve changed jobs.
Your own circumstances might not change. But the lender’s decision also depends on their own criteria. Such as whether they consider the property you’re interested in to be suitable for them to lend against. Each lender has their own criteria.
For example, some lenders will only approve mortgages on a certain number of properties, within a particular new-build development. Other examples could include, if it’s an unusual building that needs extensive renovation. Or if the property has increased risk factors, like being prone to flood or subsidence.