Mortgage in Principle
A Mortgage in Principle (MIP), also called an Agreement in Principle or Decision in Principle, is a crucial step for homebuyers. It provides an estimate of how much a lender might offer based on your financial details.
While not a legal requirement, many estate agents request one before booking viewings. This reassures sellers that you are a serious buyer with a realistic budget. A strong MIP can give you an edge in competitive property markets.
Lenders assess your income, outgoings, and credit history to determine the amount they may lend. However, this is not a formal mortgage offer. The final amount depends on further checks and a full application.
Although an MIP does not guarantee approval, it helps you understand what you can afford. This prevents wasted time viewing properties outside your price range. It also speeds up the mortgage process when you find the right home.
Most MIPs are valid for 60 to 90 days. If it expires, you may need to reapply, which could involve another credit check. Multiple applications in a short time may impact your credit score.
What is a Mortgage in Principle?
A Mortgage in Principle is an informal document that helps determine how much you could borrow. It considers your income, outgoings, and creditworthiness but does not guarantee a mortgage. Having one can provide confidence while searching for a property.
A MIP is particularly useful as it allows you to focus on properties within your price range. However, it is not a commitment from the lender. You will still need to complete a full mortgage application to secure a loan.
How Long Does a Mortgage in Principle Last?
Most MIPs remain valid for up to 90 days, though this can differ depending on the lender. If it expires before you complete a purchase, you may need to apply for another, which could result in a different borrowing amount if financial conditions change.
Difference Between a Mortgage in Principle and a Full Mortgage Offer
A Mortgage in Principle is a preliminary step that provides an estimate of borrowing potential. It is not a final mortgage offer. Once your offer on a home is accepted, you must submit a formal mortgage application. At this stage, the lender conducts a detailed review, including affordability checks and a property valuation.
Importantly, even with a valid MIP, your final mortgage offer could differ due to new financial details or changes in the lender’s policies.
How Much Does a Mortgage in Principle Cost?
Most lenders offer a MIP for free, especially online. However, some mortgage brokers may charge a fee. It is advisable to check before applying.
Factors That May Impact Your Full Mortgage Application
A Mortgage in Principle is a valuable tool in the UK home-buying process. While it does not guarantee a mortgage, it provides clarity on affordability and strengthens your position with estate agents and sellers. Ensuring the information provided is accurate will help avoid complications when applying for a full mortgage.
To explore more about mortgages, check out our previous guide on how mortgage affordability is assessed and use our Mortgage Calculator to estimate your borrowing potential.
Since a MIP does not guarantee approval, the following factors may affect your full mortgage application:
1. Changes in Your Financial Situation
Any change in income, employment, or outgoings may impact borrowing potential. For example, taking on a new loan, a salary reduction, or going on parental leave could influence a lender’s decision.
2. Discrepancies Between Your MIP and Verified Documents
Lenders cross-check the details provided during the MIP stage. If there are inconsistencies in income, expenses, or credit history, this may affect the final mortgage decision.
3. Lender’s Property Criteria
Even if your financial situation is stable, a lender may reject a mortgage based on the property. Some lenders restrict mortgages on certain types of properties, such as new-build flats or homes requiring major renovations.
4. Expired MIP and Reapplication
If a MIP expires, reapplying could result in a different decision due to changing lender policies or economic conditions. This may affect the loan amount, interest rate, or approval itself.