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What's a mortgage in principle?

24.08.2021

By Beehive Money

53

What is an agreement in principle (AIP)? 

An agreement in principle, (most of the time this is shortened to AIP), is an agreement from a mortgage lender that says, in principle, based on what you have told them about your finances and how much deposit you have, they would be happy to lend to you and offer you a mortgage. This is the piece of the house buying puzzle that can really make a difference when putting in an offer on a house as estate agents and vendors can see that you’re serious. Here are some points to remember when it comes to AIP, DIPs and MIPs. 
  • Having an AIP doesn’t mean that the lender will definitely offer you the mortgage after a full credit check. They’ll need to do a deep dive which includes more details as part of your official application, and they can only approve it after this if they’re happy with what they find.  
  • A mortgage valuation of the property you are buying will also have to be done to make sure it’s worth the offer that you’re putting in.  
  • Finally, your application will include a review of your income and spending to assess your ability to repay the loan.  
  • Usually, your original mortgage offer will be approved but don’t worry if it’s not.  

What is the difference between AIP, MIP and DIP? 

  • An AIP (agreement in principle) and a DIP (decision in principle) are the same thing, and a MIP (mortgage in principle) is ever so slightly different.  
  • An MIP is a number usually based on a multiple of your income and outgoings which would be reached without a credit check and can be printed off for you by your mortgage adviser or emailed over to you.  
  • AIP & DIP are slightly more formal and have the potential for a credit check and usually come from the lender.  
They can all come in the form of an actual certificate, a PDF document, a letter or sometimes just an email. Different mortgage lenders and estate agents will use the term that they prefer but they’re similar things and AIP and DIP can be used interchangeably. 
 

How do I get an AIP, MIP or DIP? 

You can get an MIP, AIP or DIP from your mortgage adviser or chosen lender if you have already decided to go with a specific bank or building society.  
 

How long does a mortgage in principle last? 

A mortgage in principle will usually last between 30 and 90 days. You might be able to reapply for your MIP if your current one expires before you need it, but this can affect your credit score if too many applications are put in.  
 
If anything changes during that time, then it could be best to re-do your mortgage in principle to make sure that you aren’t disappointed when it comes to applying officially for the mortgage from your chosen lender. 
 

What do I need to get an agreement in principle? 

To apply for an agreement in principle you can usually do this online, on the phone or at a branch if you are opting for a high street lender. You’ll have to provide some personal information such as. 
  • Name 
  • Date of birth 
  • Address 
  • How much you earn and how much deposit you have 
  • Information about your usual expenditure and any existing credit agreements 
You’ll then need more in-depth information to make your mortgage application like proof of income such as company accounts if you are self-employed or pay slips if you’re employed. 
 

When should I get an agreement in principle? 

You should get an agreement in principle when you are ready to start looking at houses that you want to view and potentially make offers on. The AIP is something that potential sellers will be interested to see that you have organised because it shows them that you’re ready to move forward with the buying process sooner than someone without one.  
 

Does a mortgage in principle affect credit ratings? 

Applying for a mortgage in principle won’t usually require running a credit check but an AIP or a DIP can and it can either be “hard” or soft”. Ask the lender or your mortgage adviser which one it will be as a hard check will leave a footprint on your credit file which could affect your rating in the future if your application gets declined. A soft credit check doesn’t appear on your credit file in the future.  
 

Can you put an offer on a house without a mortgage in principle? 

You can technically put an offer on a house without a mortgage in principle but there’s no guarantee that your offer will be accepted. A vendor might be reluctant to accept an offer without an MIP due to the added delay of you having to still get one and an estate agent might not even put forward your offer to them.


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