• Advice

What does a Mortgage in Principle mean for a home buyer?

A MIP is typically needed to view a house, particularly given how frantic the current market is. It can often be sorted in under an hour and puts you in a position to make a firm offer in confidence on your dream home.

This written estimate is typically based on details you’ve given about your salary, spending, any outstanding debts and, most importantly, your credit score.

You may also see a MIP being called:

• An Agreement in Principle (AIP).
• A Decision in Principle (DIP).
• A Mortgage Promise.
• A Lending Certificate.

Do you need a Mortgage in Principle?

No, it’s not compulsory to have a MIP and it isn’t a legal requirement to have one before making an offer on a house.

However, these are some of the benefits of having one:

• You’ll get a better understanding of what you can afford.
• A MIP demonstrates that you are serious about buying a home.
• You might be given an advantage over other buyers who don’t have a MIP, as this written estimate will showcase that your offer is affordable.
• Estate agents may ask to see your MIP when you make an offer or even just to view a property, especially when the market is competitive.

When should you get a Mortgage in Principle?

You should apply for a MIP as soon as you start your journey onto the property ladder, before you start viewing any houses and making any offers.

It shows a commitment to the house buying process and gives you a boost by knowing what you can afford, even if this is just in theory.

What do you need to apply for a Mortgage in Principle?

When applying for your MIP, you will need the following details:

• Personal details - this includes your full name, date of birth, and National Insurance number.
• Your addresses for the last 3 years.
• Details of your income.
• Details of any financial commitments, for example loans, credit cards, and ongoing subscriptions.
• The size of your deposit.

Do you want to work out what you can afford? Use our helpful mortgage calculator to find out.

Can a Mortgage in Principle be declined?

A MIP is simply an indication from lenders of how much you can borrow and not a firm mortgage offer, however, it can still be declined.

If one lender rejects your application though, it doesn’t mean that another won’t accept it.

How long does a Mortgage in Principle last?

A MIP is usually valid for anywhere between 30 and 90 days, depending on the lender.

You may be able to renew the terms after the 90-day period has passed though, but again this depends on the lender that you use for the MIP.

If you still haven’t found a property after the period has passed, however, you may need to apply for a new MIP.

Does a Mortgage in Principle affect your credit score?

Applying for a MIP is unlikely to affect your credit score. However, we do recommend that you avoid obtaining numerous MIPs.

Generally, lenders will only run a soft credit check on your account when you’re applying for a MIP. They will typically just look at your credit history and any credit cards or overdrafts that you currently have open. This is unlikely to have any impact on your score, but some may leave a ‘footprint’ which could have an adverse effect.

When you apply for your mortgage though, lenders will run a hard credit check and also leave a ‘footprint’ on your credit file, which will potentially impact your credit score.

Can you get a mortgage with bad credit?

Yes, it is possible to get a mortgage with a bad credit score. So if your mortgage application is rejected, don’t give up hope.

You may need a larger deposit or to pay a higher interest rate, however, but it is possible.

You may be asked further questions by the lender too, depending on how bad your credit score is. This is because they will want to find out more information about any past issues that you’ve had with your credit score.

Your ability to borrow may be impacted by if you have:

• Been issued with a bankruptcy order in the past 6 years.
• Had a County Court Judgment (CCJ) for a debt that you haven't repaid within the past 6 years.
• Been refused for a mortgage or had a home repossessed within the past 6 years.
• Have less than 3 months' employment history in your current employment.

Another aspect to bear in mind here is that, as a general rule, the smaller the deposit you have to put down, the better your credit score will need to be.

Does a Mortgage in Principle guarantee a mortgage?

No, you can receive a MIP but still be declined for the mortgage.

If you’re refused for a mortgage following a MIP, it’s often because the lender has found something on your credit file that didn’t match their criteria.

What is the difference between a Mortgage in Principle and a formal mortgage offer?

It’s important to note that a MIP isn’t a formal mortgage offer.

A MIP is simply an indication from the lender that, providing the details you have submitted add up, they will be able to lend you a certain amount of money. It shows you’re a serious buyer, but it isn’t a binding offer.

A formal mortgage offer is an official document that will be provided by a lender using the property you want to buy as security against the loan. A full mortgage offer is needed before you can legally purchase the property.

We understand that applying for a mortgage can be complicated, so we’ve compiled a guide for first time buyers around applying for your first mortgage. You can also check out our first time home buyers guides hub to find all the information you need about this very exciting step in your life.

Don’t forget that you can always contact our dedicated team for help answering any property-buying questions you may have too. They will look to give you peace of mind throughout your journey to owning your first home.