Do you know what a Decision in Principle is and when/why you need one when buying a home?
A Decision in Principle (DIP) is provided by your chosen mortgage lender to show that they could, in principle, give you a mortgage up to a certain amount.
There are other terms for it, too. You might be asked for an Agreement in Principle, a Mortgage Promise, or an Approval in Principle: these are all the same thing.
A DIP allows people in the house purchase process, such as estate agents, to qualify that you would be in a financial position to buy a property. It’s not a binding agreement, but it does outline whether you could afford a property you’re interested in buying.
When do I need a Decision in Principle?
Most estate agents will request that you secure an DIP from your preferred lender before you start the purchase process.
They will ask you early in your buying process to provide proof of funds or affordability, such as the Agreement in Principle, to make sure you aren’t wasting anyone’s time – including your own.
Does a Decision in Principle affect my credit score?
Many lenders will do a ‘soft search’ on your credit file to decide if they could lend to you, and the total amount you would be entitled to borrow. This means they can check your credit score but it won’t affect it, even if your application is rejected.
However, some lenders will perform a more intensive ‘hard search’ which can negatively affect your credit score if you are rejected.
Before you agree to a credit check, determine which type of check will be run on your credit file. This is particularly important if you have previous debts or marks on your file and you’re already worried about a rejection.
What's the process of getting a Decision in Principle?
Before you approach a lender about getting an DIP, make sure they’re the provider you’d like to take out your mortgage with. Several credit searches in a short space of time can negatively impact your score, which may reduce the amount a lender is willing to let you borrow.
Do your research and, if you need more information, speak to a mortgage broker with access to a wide range of deals on the market. They’ll be able to access a broad range of potential lenders based upon your personal circumstances, and can help to guide you through the application.
Your chosen lender will need to have some information to run the credit check on you. This includes basic personal information, plus other details such as your income and expenditure.
The lender will then run the credit check and you will usually find out within a few minutes if you have been accepted, in principle, for a mortgage. The adviser will let you know how much you can borrow, the loan length, and repayment and interest terms for which you have qualified.
You’ll be given a certificate, which you can use to show to property agents as proof of your approved application in principal.
Does a DIP guarantee that my mortgage application will be accepted?
A DIP doesn’t guarantee that you’ll be accepted for a mortgage. It’s a guide to let you know how much you could borrow, and to help estate agents determine if you are a realistic buyer for the properties you’re interested in viewing.
Changes to your circumstances, such as a new job or redundancy, will affect your mortgage application. There are other things, such as missed credit card repayments, that will affect your credit score if they occur in the time between receiving an Agreement in Principle and applying for a mortgage.
You may also not receive a mortgage, despite having a DIP, if the lender decides there are restrictions on the property you want to buy. Examples of such restrictions include non-standard property construction or a property tied to strict covenants that could impede a future sale.
If you’re looking for mortgage advice in Kingswood and Hull and need a Decision in Principle, get in touch with us today for an initial, free appointment by calling 01482 470444 or send us an e-mail.