What is a mortgage in principle?

A mortgage in principle is also known as a Decision in Principle (DIP), Agreement in Principle (AIP) or mortgage promise. This is a statement from a lender saying that they’ll lend a certain amount to you before you’ve finalised the purchase of your home. If you’re buying property in Scotland , you’ll have to get one before you submit a bid.

If you’ve got a mortgage in principle, you can show sellers that it’s likely you’ll be able to afford the property that you want to purchase. This could help if they’re deciding between more than one buyer. If you’re worried about poor credit, a mortgage in principle could give you an idea whether or not a lender thinks you may be able to afford to repay your home loan.

It’s important to note, though, that it's offered in principle. When you make a formal application for the mortgage itself, the lender has the right to change the details of the deal, or they may decide not to grant you the loan (for example, if your financial circumstances have changed). If you leave a long period of time between getting a mortgage in principle and applying for a mortgage, you may find that the interest rates have changed, or that you could find a better deal elsewhere.

Will it affect my credit rating?

Lenders are likely to make credit checks when you apply for a mortgage in principle. However, some lenders may make "soft searches" and others may make "hard searches". A soft search records the credit check as an enquiry, whereas a hard search will mark that you’ve made an application for credit. Having too many hard searches on your credit report could suggest to lenders that you may have difficulty in repaying your loans. You may want to check with a lender whether they’ve run a soft or hard search before applying for a mortgage in principle.

If you’re planning on applying for a mortgage, you may want to check your Equifax Credit Report & Score beforehand – it’s free for the first 30 days, then £14.95 monthly. It lets you view your credit history and gives you an indication of how creditworthy a lender may find you.

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