Mortgage in Principle: Definition, How It Works + How to Get One

The purchase of a home is one of the most significant investments you’ll ever make, but it’s often hard to do without a mortgage. Before you submit your mortgage application, it’s wise to obtain a mortgage in principle (MIP). Our guide addresses what a mortgage in principle is and presents essential information on how to get one.

What Is a Mortgage in Principle?

A mortgage in principle is a written statement from a lender (bank or building society) that shows you the amount you’re eligible to borrow. This is also known as an agreement in principle (AIP) or decision in principle (DIP), used to prove to estate agents and vendors that you can obtain a mortgage and purchase a property.

Keep in mind, however, that an agreement in principle is not legally binding. But does an agreement in principle guarantee a mortgage? No. You shouldn’t assume it to be a guarantee to secure a mortgage. It’s merely an assessment based on a soft credit search, and the offer can change after a detailed check of your credit record—the lender retains the right to adjust the deal’s details.

Why Do You Need a Mortgage in Principle?

After understanding the basics of a mortgage in principle meaning, you may still wonder if you need one. A MIP is not compulsory but consider the following reasons for obtaining one.

• Gives a clear understanding of your buying power: You’ll have an idea of your budget to look for a type of property within your means.
• Reduces risk of rejection: You won’t apply for a sizable mortgage and risk being rejected when you know approximately how much you can borrow.
• Sellers and estate agents take you more seriously: Having an agreement in principle for a mortgage will show the estate agent/seller that you’re a serious buyer and you’re not wasting their time.
• It’s quick and easy: Applying for a MIP is easy, and approval takes only (at most) several days.

Knowing all the benefits of a MIP should bring you closer to obtaining one. But when is the right time to apply for one?

When Do You Need a Mortgage in Principle?

What does a mortgage in principle mean regarding the right time to obtain one? The best time to get a MIP is as soon as you start thinking of buying a home. If you’re seriously interested, you should get a mortgage in principle ASAP because it will give you an idea of what you can afford and your negotiating power. It’ll also help you commit to the search for your future home.

How to Get a Mortgage in Principle

Once you’ve decided to get a MIP, you’ll want to know how the process works and what you need to apply. You can apply directly with the lender (online, via phone, or in-person) or through a mortgage broker. Regardless of which you choose, the process is the same. You’ll need to submit the following information.

• Personal details: name, date of birth, current address
• Previous addresses: residential addresses of the last three years
• Income verification: payslips and bank statements
• Records of spending: utility and credit card bills, subscriptions
• Other credit agreements: any other outstanding loans

The information you provide will determine how long it takes to get a mortgage in principle and the amount lenders are willing to give you. Factors that may entice lenders to reject your application include missed payments, debts, and arrears.

You can, however, apply for more than one MIP with different lenders, but check if the lender will conduct a soft or hard search on your credit record—too many hard inquiries can affect your credit rating.

How Long Does It Take to Get a Mortgage in Principle?

The timeframe for approval depends on your credit rating and the documentation you provide. If your credit rating is good and you provide all the required documents, you can be approved within an hour. If you have a poor credit rating or fail to deliver the necessary documents on time, it may take lenders longer to respond to your application—up to several days. It’s also more likely that your application will be rejected.

So how long does a mortgage in principle take to get? If you decide to use a mortgage broker, you can improve your chances of approval, and the process might be quicker. But keep in mind that you’ll need to pay the broker fees.

Key Takeaways

How Long Does a Mortgage in Principle Last?

The lender determines the validity of a MIP. In general, these statements are valid for 30 to 90 days. When applying, check the validity period to know how long you have before applying for a mortgage or renewing the MIP.

Renewing the mortgage is a straightforward process, and most lenders are happy to issue another statement. Just make sure to understand whether they would run another credit check.

The question of ‘what is a mortgage in principle’ includes two other factors that influence the duration of the MIP: the current state of the economy and changes to your circumstances (job changes, unemployment, debt accumulation). If these occur, the recent statement can cease to be valid, or your renewal application may be rejected.

Mortgage in Principle & Credit Rating: How Are They Connected?

Now that you’re familiar with the mortgage agreement in principle meaning, the benefits of obtaining such an agreement and how the process goes, another question needs to be asked: Does a MIP affect your credit rating?

This answer to this question depends on the type of credit check lenders use when reviewing your credit record. All lenders must ask your permission to run a credit check—at which point you should ask if it would be a ‘soft check’ or ‘hard check’.

What Happens after a Mortgage in Principle Application Is Submitted?

After applying, the lender may choose to run a soft check (quotation search), which is the better option because other lenders won’t be able to see it, and it won’t affect your credit rating.

Lenders, however, may choose to conduct hard credit checks. Although a single hard check shouldn’t affect your rating, it will appear on your credit record. But if several hard checks are conducted, it may cause lenders to think that you’ve been rejected several times, and they may refuse to grant a mortgage because you seem to be an unsuitable borrower. So can a mortgage be declined after an agreement in principle? Yes.

Regardless of the type of checks lenders conduct, checking your credit rating is one of the integral parts of the process of applying for a mortgage and any future applications for loans, lifetime mortgages, and remortgages.

Conclusion

What is a mortgage agreement in principle is a question that should be on the list of anyone contemplating purchasing a home. A MIP will paint a picture of how much you can borrow, making the whole process significantly easier. So if you’re a prospective homebuyer, make sure you get a mortgage in principle before doing anything else.