In this article, we explain what a mortgage in principle is as well as when and how you can arrange one. We also look at how long a mortgage in principle agreement lasts as well as the important role it can play in the house-buying process.
You can find similar information about formal mortgage offers in our article, "How long does a mortgage offer last?".
What is a mortgage in principle?
A mortgage in principle (MIP) is a conditional offer of a mortgage loan from a bank or building society to a homebuyer, based on some basic details. It is sometimes referred to as a mortgage agreement in principle (AIP) and can be applied for in advance of making a full and formal mortgage application. A mortgage in principle is offered based on your:
- Income
- Outgoings
- Other credit agreements
- Personal information including your address
A mortgage in principle is not a mortgage promise and a full and formal mortgage offer is usually made by a lender once a full valuation and property checks have been satisfactorily checked. So, despite being an indication of a mortgage offer, a mortgage in principle does not guarantee that you will qualify for the amount of money you wish to borrow to purchase the specific property you choose. Most homebuyers will acquire a mortgage in principle to check that they meet the lender's affordability criteria ahead of submitting a full mortgage application.
When to arrange your mortgage in principle
It is beneficial to get a mortgage in principle before you start your property search as estate agents find these useful in verifying you as a serious homebuyer who can afford to purchase the properties you show an interest in.
Your mortgage agreement in principle will usually remain valid for up to 90 days and may be renewed if your property search takes you beyond this period.
How to get a mortgage in principle
Step 1 - Choose a mortgage lender
You should start by selecting your preferred lender - if you do not know which lender to choose, it is helpful to contact an independent mortgage broker* who can search the mortgage market based on your requirements. Mortgage brokers work for you and many do not charge for the service they provide as they will be paid an arrangement fee by the lender once you complete your mortgage.
It is worth noting that a mortgage in principle application usually does not leave a footprint on your credit report as the lender will carry out what is known as a soft credit check. However, some lenders may carry out a hard credit check, leaving a footprint on your credit file which can affect your credit rating and in such cases, you need to be wary that you do not complete too many of these types of applications. Multiple credit checks within a short period of time may indicate that you are struggling to arrange credit, making you less attractive to subsequent lenders.
Step 2 - Gather your information
It is a good idea to gather what you need for a mortgage in principle application including your bank statements, payslips or accounts, credit agreement contracts and identification documents as you will find most of the information needed within these documents.
Step 3 - Complete the application
Mortgage in principle applications can usually be completed online or in a branch with the lender of your choice and most decisions are provided within minutes, however, some may take a few days to process. The application form is simple and shouldn't take more than a few minutes to complete if you have all of your information to hand.
Is a mortgage in principle guaranteed?
No, a mortgage in principle is usually subject to further checks and verifications once you complete a formal mortgage application form. Your lender will normally request a valuation and property checks for the property that you wish to buy and only after all lending criteria is satisfied, will you be made a formal mortgage offer. You can read more about the formal application for a mortgage in our article, "How long does a mortgage offer last?"
How long is a mortgage in principle valid?
A mortgage in principle is valid for between 30 days and 90 days depending on your lender. They can usually be renewed once they expire and this is quite common due to the time it may take you to have an offer accepted on a property.
Summary
A mortgage in principle is a good gauge of whether you will be accepted for the mortgage that you need and can help you to plan the range of property prices that you can afford. Furthermore, estate agents and sellers will deem you a viable buyer who is less likely to waste their time.
It takes very little time to complete the application for a mortgage in principle but you may need some help in selecting the mortgage deal and lender that will be best for you. You can do this by enlisting the advice of a mortgage broker who will search the mortgage market on your behalf and may even have access to some mortgage deals that are only available through an intermediary.
If you don't have a mortgage broker, you can source one using VouchedFor* - a service that vets and filters financial professionals based on your preferences and location. Alternatively, you can contact Habito*, an online mortgage specialist that searches for mortgage deals from over 90 lenders.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Habito, Vouchedfor
