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Decision in Principle

Leaf Financial Advisers Ltd. - Trusted Mortgage Brokers

What is a Decision in Principle?

  • A Decision in Principle is an indication from a mortgage lender of how much they may be willing to lend you for your mortgage, based on an initial assessment of your circumstances. 
  • The initial assessment can include your income and spending, credit rating and other factors.
  • They are not binding and the amount offered could change following a more detailed assessment of your income and spending, credit rating and other factors (when you have found a property and make a full Application.) 

A Decision in Principle (DIP)  is sometimes also referred to as:

  • an Agreement in Principle
  • a Mortgage in Principle
  • a Mortgage Promise

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Why do you need a Decision in Principle?

A Decision in Principle makes it easier for you to start looking for a property to purchase:

  • You have an idea of how much you will able to borrow and so what property you are able to afford.
  • It gives the sellers and estate agents confidence that you are a serious buyer and are likely to get the mortgage needed to buy the property.
  • It can put you in a stronger negotiating position as in most circumstances, the vendors will prefer an offer that is backed up with a DIP compared to one that isn’t.
  • As well as giving you an idea of what price range you can look for properties in, it also helps give you an idea of what deposit you may need and what interest rates and monthly payments you are likely to pay.
  • Estate Agents and Vendors are increasingly requiring DIPs before they will show a property to an interested buyer.

How long does a Decision in Principle last?

This varies between lenders; however, they typically last anywhere between 60 to 90 days.

If the Decision In Principle expires before you need to use you can reapply, but you must be careful to not apply too often as it’s possible that this may impact your credit score.  

How to get a Decision in Principle?

There are 2 ways to apply for a Decision in principle

  • directly from a mortgage lender (i.e. a bank or building society)
  • through a mortgage broker

It’s generally advised to use a mortgage broker, since they will have access to a greater range of mortgage than you can find on the high street or online.  Whereas going direct to a lender will only give you access to a limited range of products.  Plus if you go direct to a lender and don’t fit the criteria, you won’t necessarily be accepted at all.

An experienced independent, whole-of-market broker, will already know which lenders are likely to accept you, as well as being able to offer you the best deals from providers across the whole market.

You can also save time this way, as your broker can find you the best potential mortgage deal straight away to save you searching around once you’ve had your offer accepted. 

What happens after you receive a Decision in Principle

Once you have found a property you want and have had your offer accepted, then the next step is to make a full Mortgage Application.  If you have used a broker to get your Decision in Principle then they will be able to re-use the information you have already given them to form the basis of your full Application.  If everything is satisfactory, your lender will make you an official mortgage offer.

Why might your mortgage offer differ from your Decision in Principle?

There are 2 main reasons for a potential difference in the amount a lender is willing to offer from a full application compared to a Decision in Principle

  • Your personal situation has changed since you took out the DIP.  It can be several months between the DIP and the full application, and in that time your credit history is being constantly updated, along with any changes in your income and expenditure.  This can result in a different outcome.
  • The more thorough review of your situation that takes place with a full application may reveal details that change the lenders view of how much they are willing to lend.  The DIP is only a light tough review and the lenders undertake a much more thorough review of your finances and the property, which may lead to a slightly different outcome.

What’s the difference between a DIP and a Full Application

A DIP is a non-binding indication of how much a bank is willing to lend you for a mortgage.  A Full Application will involve more detailed checks and likely require you to provide more information and proof of things such as your income etc.

However, the main difference is that an Application is the only way to receive an actual Mortgage Offer.

Next Steps

If you have any further questions or need to start the process of getting a free decision in principle, then the next best step is to contact a Whole of Market Mortgage Broker

They will be able to answer any questions you still have, and arrange a decision in principle for you from a major high street lender if you require one.  Alternatively, you may find you are ready to proceed to a full mortgage application.

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