What is a mortgage Decision in Principle?

Applying for a mortgage is an exciting time. But it can be super confusing too. 

Whether you’re a first-time buyer who’s trying to get on the property ladder for the first time, a homeowner looking to move to a new property or are looking to remortgage, it all starts with getting a Decision in Principle (DIP) from a lender. 

In this guide, you’ll find:

• Understanding your Decision in Principle

• How to get a Decision in Principle 

• Using a mortgage broker vs submitting your own application

• Does getting a Decision in Principle affect your credit rating?

Understanding your Decision in Principle

A DIP can also be called an Agreement in Principle (AIP), or Mortgage in Principle, a Lending Certificate or mortgage promise. A Decision in Principle is a confirmation from a lender that they’re willing to lend you a certain amount of money to purchase a property. 

It confirms they’d be happy for you to borrow money from them.

The DIP takes into account whether you can afford to borrow the amount that you’re wanting to, based upon your income and regular outgoings, as well as the results from a soft credit check and any other lending criteria.

You need one before you can submit a full mortgage application. And they typically last for between 30 and 90 days, depending on the lender.

It’s a strong indication that you’re likely to be approved, as long as you meet the criteria set out by the lender who you apply with. It can help you get an indication about the size of mortgage you’re eligible for, which helps you to determine how much deposit you’re going to need and the options that are available to you.

If you have a bad credit history, or other factors like self-employment that have affected your mortgage application, it can give you the confidence that you’re in a strong position to put in an application.

Estate agents will often want to see confirmation you have a DIP in place before accepting an offer on a property, and it makes the process a little smoother and easier for the seller too – they’ll know you’re serious enough about the property for them to take it off the market. 

It’s also important to understand what a DIP isn’t:

• It’s not a mortgage offer

• It doesn’t mean you’re guaranteed to be approved

• It’s not related to a specific property.

• It’s not guaranteed that you will be able to borrow this amount.

• It’s not a commitment to get a mortgage with the lender that’s given you the DIP

How to get a Decision in Principle

To get a Decision in Principle from a mortgage lender, you firstly need to send information about yourself and your income to the lender. Some people do this directly, others get their mortgage broker to do it for them.

Ideally, you’ll have identified the right lender for your circumstances and financial situation so you have maximum chance of being accepted. 

What you need to submit will depend on your situation, but generally it’ll be some, or all, of these:

• Personal details for all of the mortgage applicants (Name, Date of Birth, etc)

• Previous address details if these have changed in the past three years

• Photo ID like your passport or driving licence

• Utility bills as proof of your current address

• Information about regular outgoings

• Information about any debts that you are repaying, including credit cards, student loans, bank loans, or other mortgages.

• Payslips if you’re full-time employed

• Accounts if you are self-employed

Using a mortgage broker vs submitting your own application

Professional advice from someone who lives and breathes the mortgage industry is a really good idea. A specialist mortgage broker will be able to help you find the right mortgage for you and will make sure you understand your options.

However, you can apply directly to a lender as a borrower. Doing it this way will mean you have less options available to you because mortgages that are directly available to customers are extremely limited. Brokers have access to varied options, have established relationships with specialist lenders and have experience in dealing with complicated applications.

If your mortgage application situation is complicated, get in touch with a specialist broker to help. 

Does getting a Decision in Principle affect your credit rating?

No, it doesn’t. When lenders run a credit check for a Decision in Principle it’s known as a ‘soft credit check,’ as opposed to the ‘hard credit check’ that’ll be made when you make a full mortgage application. This means that when a lender makes a check for a Decision in Principle, there will be no history of the search for other lenders to see in the future.