Buying a home is an exciting journey, but it can also be overwhelming, especially when it comes to securing a mortgage. One important step in this process is obtaining a Decision in Principle (DIP).
A DIP is a useful tool that helps you understand how much you might be able to borrow for your mortgage, giving you a clearer picture of your budget as you start your house hunt.
This article will explain what a DIP is, how it differs from a mortgage offer, what you need to apply for one, and how it affects your credit score.
Whether you are a first-time buyer or looking to switch lenders, understanding the role of a DIP can make your home-buying process smoother and more confident.
What is a Decision in Principle?
A Decision in Principle (DIP) is a document from your mortgage lender that shows how much they are willing to lend you for a mortgage. This can also be called an Agreement in Principle, a Mortgage Promise, a Mortgage in Principle, or a Lending Certificate.
Having a DIP helps when you start looking for a new home. It gives you an idea of your budget and shows estate agents and home builders that you are serious about buying a property. If you switch to a different lender or want to borrow more, you will need a new DIP.
Remember, a DIP is not a final mortgage offer, so you will still need to complete a full application to get the mortgage.
Is an Agreement in Principle the Same as a Mortgage Offer?
No, an Agreement in Principle (AIP) and a mortgage offer are not the same. An AIP just gives you an estimate of how much money a lender might lend you based on basic financial information.
A mortgage offer is a firm promise from the lender to give you the money for the house you want to buy. This offer is based on a detailed review of your finances and an assessment of the property.
You can only get a mortgage offer by completing the full mortgage application process. Because the mortgage offer involves more detailed checks, having an AIP does not mean your mortgage application will definitely be approved.
What Do You Need to Get an Agreement in Principle?
To apply for an AIP, you will need to provide:
- Your address history in the UK for the past three years
- Details about your income, such as salary, bonuses, benefits, pensions, or investments
- Information about your credit cards, finance, and loans
- Details of your expenses, including travel costs, childcare, and school fees
Does a Decision in Principle Affect Your Credit Score?
When you apply for an AIP, the lender will do a soft credit check. A soft credit check does not affect your credit rating. It will not show up to other lenders on your credit report and will not affect your ability to borrow in the future.
However, if you go on to make a full mortgage application, the lender will run a formal credit check, which will leave a mark on your credit report.
How Long Does a Decision in Principle Last?
An AIP from Nationwide is valid for 90 days. You can use it to apply for a mortgage right away. When you get your AIP, you will receive a confirmation email with a link to your mortgage application hub. Make sure to keep this email.
Conclusion
An Agreement in Principle is a helpful step in the process of buying a home. It gives you an idea of how much you can borrow and shows sellers that you are a serious buyer. Remember, it is not the same as a mortgage offer, and you will still need to complete a full application to get your mortgage.
FAQs
Can I use a Decision in Principle for more than one property?
Yes, you can use a DIP to show different sellers you are serious about buying.
Will my credit score be affected by applying for a Decision in Principle?
No, a soft credit check for a DIP does not affect your credit score.
How long is a Decision in Principle valid?
A DIP is usually valid for 90 days.
Is a Decision in Principle a guarantee that I will get a mortgage?
No, it is not a guarantee. You still need to complete the full application process to get a mortgage.
Do I need a Decision in Principle to make an offer on a house?
Having a DIP can make your offer stronger, but it is not always required.
