By using our site, you agree to our cookie policy.
Mortgage in Principle Explained
The first step to buying a house with a loan is to secure a Mortgage in Principle. This is an indication of how much money you’ll be able to borrow from a lender, when the time comes to buy a property.
What’s a Mortgage in Principle?
A Mortgage in Principle (MIP) – also known as a Decision in Principle (DIP) or Agreement in Principle (AIP) – is a bank agreeing to lend you money “in principle” or “in theory” or “hypothetically” or whatever you want to call it. The lender is basically taking a little look at your financial credentials (income, for example) plus how much you want to borrow, before deciding if they’ll lend you the money when you find a house and want to put an offer in. This is done before anything else, really. Before you even start house-hunting. So, nobody is lending you any money yet. They’re merely agreeing to the idea at this stage.
Why do I need an MIP?
A "mortgage in principle" is a quick check to see if you can afford to buy a house. You tell the bank or mortgage broker (you can go to either…more of that later) how much you want to borrow, and they take a quick look at your income, expenses, and credit history to see if you can afford it. They don't give you the money just yet, but they give you a "yes" or "no" answer to whether they think you can afford a house. If you're approved for a mortgage in principle, the lender will give you a certificate or a letter that confirms how much they're willing to lend you, based on the information you've provided. Why do you need it? This is your golden ticket to start shopping for your dream home for a few main reasons: It shows sellers and estate agents that you're serious and financially capable of purchasing a property. It shows you how much you will (probably) be able to borrow, and therefore what your buying budget is. There’s no point looking at 9-bedroom castles if your Mortgage in Principle shows that you would only be approved to borrow £180,000. Or, if you’ve been approved for a £390,000 loan and you’re looking in an affordable area - perhaps you could start looking at 3-bedroom properties, rather than 2-bedroom properties?
It avoids having to go through lots of full mortgage applications. Imagine if every time you were considering booking a holiday, you had to pack a full suitcase! This way you’re essentially given a budget for a holiday, so you can look through holiday websites and decide where you’re going (and for what price) before you pack your snorkel. It shouldn’t affect your credit score. Every time you apply for a mortgage (not a mortgage in principle) you will go through a full credit check. This affects your credit score. If you go through this process lots of times, it could imply to lenders that your credit history isn’t reliable, and other mortgage lenders have declined your application based on your credit history.
Your mortgage in principle is your golden ticket to start shopping for your dream home..."
How do I get a MIP?
First things first, you'll need to find a mortgage lender who offers a mortgage in principle. You can start by doing some research online or asking around for recommendations.Strike financial services (which is another way of saying “brokers”) offer expert advice and have already secured great deals for thousands of happy customers, so reach out when you’re ready to start thinking about your mortgage.
Who will give me a mortgage in principle?
You can go two main routes at this point. Either you can go directly to a lender (like a bank or building society) and compare their mortgage deals, or you can go to a broker who will have a large choice of mortgage deals from different lenders. Here are your major options when considering where to turn for your MIP: A broker: a broker is basically a middleman between you and your mortgage. They’re essentially like an estate agent, but for your financial matters. Just as we believe it’s easier to buy a house with an agent, it can also be more efficient to go with a broker. As Martin Lewis’ Money Saving Expert says, “qualified mortgage brokers are also worth their weight in gold”. They know the lenders’ criteria and handle the application, so they will help guide you through it. If you’re stressed about the details or worried about finding the right deal, it’s their job to relieve the stress and ensure you’re not missing out on any well-suited mortgage products. They will guide you through your MIP, as well as the actual mortgage application when it comes to it.
Alternatively, you can also go directly to a lender. You may prefer to do this if you’ve already identified a product that appeals to you, or if they’re sorted your mortgage in the past. If you go with a lender for your MIP, you can always switch and go to a broker for your actual mortgage application. High street banks: These are the large, well-known banks that offer a range of financial products and services, including mortgages. When you go directly to a lender Examples include Barclays, HSBC, Lloyds Bank, NatWest, and Santander. Building societies: These are mutual organisations that offer savings and mortgage products to their members. Some building societies have branches, while others operate online or through intermediaries. Examples include Nationwide, Coventry Building Society, and Yorkshire Building Society. Specialist lenders: These are lenders who specialise in certain types of mortgages, such as buy-to-let, self-employed, or adverse credit mortgages. Examples include Precise Mortgages, Kensington Mortgages, and Aldermore. Online lenders: These are lenders who operate solely online and may offer lower rates and fees compared to traditional lenders. Examples include Habito, Trussle, and Mojo Mortgages. Credit unions: These are not-for-profit, community-run organisations that offer savings and loans to their members. Some credit unions offer mortgages to their members, although their product range may be limited.
Qualified mortgage brokers are worth their weight in gold"
MARTIN LEWIS - MONEY SAVING EXPERT
What are the benefits of using a broker vs. going to a bank?
If you’re still umming and ahhing over the question of bank v broker, here are some benefits to going with a broker: Access to a wider range of mortgage options: Mortgage brokers work with multiple lenders and can provide you with a wider range of mortgage options than what you may find at a single bank. This can include lenders that are not available to the general public. Expertise and advice: A mortgage broker can provide you with expert advice on the best mortgage options for your specific financial situation. They can also explain the different types of mortgages, such as fixed or variable rates, and help you understand the pros and cons of each. Time-saving: Mortgage brokers can save you time by doing the research and paperwork for you. They can also handle the negotiations with lenders, which can be time-consuming if you were to do it yourself. Increased chance of approval: Mortgage brokers have relationships with multiple lenders and can often help you find a lender who is more likely to approve your application. This can be particularly helpful if you have a low credit score or other financial challenges. Cost-saving: A mortgage broker may be able to help you find a mortgage with lower interest rates or fees, which can save you money over the life of your mortgage.
Overall, using a mortgage broker can make the mortgage application process easier, more efficient, and potentially save you money in the long run. As experts in property and mortgages, our team of advisors can guarantee you access to more than 12,000 mortgage deals in order to secure you the best possible rate. Strike’s expertise could help you to afford more house than you previously thought possible. Plus, because we handle everything from MIP to completion, you can keep your whole house-buying process under one roof, which should ensure a smoother journey throughout. Oh and even if you’re not looking at Strike properties, you can still use our financial services team.
What does the lender need from me to issue a MIP?
Once you've found a lender you like, it's time to gather some information. Just like a detective needs clues to solve a mystery, the mortgage lender needs information to decide whether to give you a mortgage in principle. So, get ready to gather some documents, like your proof of income, expenses, and credit score. You might also need to answer some questions about your employment status, savings, and other financial obligations.
This is exactly what you’ll need to apply for a MIP: Address history in the UK for the past 3 years Income, including both your salary and bonuses, benefits, or investments (and pensions, if applicable). Existing loans, credit cards and finances (which are things that you’ve bought that you pay back monthly - like a car). Expenditures or “regular spending”, including childcare and travel expenses.
How will the lender decide whether to accept or decline my application for a loan?
Once you've provided all the necessary information, the mortgage lender will take a look and see if you meet their requirements for a mortgage in principle. This usually takes under an hour, but it could be slower if you don’t have your documents ready to go.
Will applying for a Mortgage in Principle affect my credit score?
No, don’t worry, the lender does not do a full credit check when you’re applying for a mortgage in principle, instead doing what’s known as a “soft credit check”. This involves your lender asking credit reference agencies to confirm whether your application matches what they have recorded as your credit history. The full credit check doesn’t happen until you actually apply for a mortgage.
Will my MIP application be approved or denied?
Whether you’re declined or accepted for a mortgage in principle decides on several things. There are several reasons why your lender may decline your application, including: Affordability issues: The mortgage lender may have determined that you don't meet their affordability criteria based on your income, expenses, and credit history. This means they don't believe you can afford the repayments on the amount you applied to borrow. Poor credit history: If you have a history of late or missed payments, defaults, or bankruptcy, it could affect your credit score and make it harder to get approved for a mortgage in principle. Employment status: If you're self-employed or on a temporary or zero-hour contract, some lenders may view your income as less stable and may decline your application. Insufficient deposit: Some lenders require a minimum deposit, usually at least 5% of the property's value, and may decline your application if you don't meet this requirement. Property type or location: Some lenders may have restrictions on lending for certain types of properties, such as high-rise flats or ex-council houses. They may also have restrictions on lending in certain locations, such as areas with a high risk of flooding.
It’s not the end of the world if you’re denied your mortgage in principle. There may be other lenders who will approve your application. Or perhaps you have to spend some time saving more money for a deposit, or bettering your credit score. If you have a mortgage broker or advisor, they will help you with your next steps. If you're approved for a mortgage in principle (woohoo!) the lender will give you a certificate or a letter that confirms how much they're willing to lend you, based on the information you've provided. This is your golden ticket to start shopping for your dream home, as it shows sellers and estate agents that you're serious and financially capable of purchasing a property.
How long does a MIP last?
Once you have your certificate, it is generally valid for 90 days. This varies between lenders, however, and can be as little as 30 days, which obviously gives you less time to search around for your property. You should be able to reapply for a MIP if your agreement has expired.
Does a MIP guarantee me a mortgage offer?
No, remember a Mortgage in Principle is different from a mortgage offer. Once you’ve found your desired property and wish to make an offer, you will go about making an actual mortgage. The deal that you’ve secured during your MIP process may have changed when it comes to making the real mortgage application. There are a few factors that will affect the lender’s terms, including their lending criteria and changes to interest rates nationally. If your circumstances have changed (like, if you’re in a different job than when you had your MIP approved) then you’ll need to make a new application.
So there you have it – getting a mortgage in principle is as easy as gathering some information, applying to a lender, and waiting for between a few minutes - a few days for a decision. Just remember, every lender is different, so make sure to shop around to find the best deal for you. And here at Strike, we can do that for you!
Mortgage in Principle FAQs
Do I need a deposit to secure a Mortgage in Principle?
That depends. In some cases, you’ll just have to say how big your deposit is — but you won’t have to prove it. That being said, you should always be honest. If you fib on your mortgage in principle, you’ll likely face problems down the line when you go to apply for the actual mortgage. So let’s just keep things above board, right?
How quickly can I get a Mortgage in Principle?
What can go wrong after a Decision in Principle?
What should my credit score be to get a mortgage?
Do estate agents check my MIP when I’m viewing a property?
Do I need a Mortgage in Principle?
Strike feel free
Copyright © Strike Limited 2024
