If you are looking to purchase a property in the near future, then you may need a mortgage in principle (MIP), or decision/agreement in principle, as it is sometimes referred to as. In this article, we explain what a MIP is and why you might want one or be required to obtain one.
What is a mortgage in principle / agreement in principle?
A mortgage in principle is confirmation from a mortgage lender stating how much they are prepared to lend to you, subject to the checks that they will perform if you decide to proceed with the mortgage application.
Some estate agents will request to see a MIP as evidence that you have been approved for a mortgage amount to cover the value of the property that you are interested in buying and may not agree to a property viewing unless you provide one. Agents and sellers are more likely to take you seriously if you have a MIP. So, if there is a lot of interest in the properties you are looking at, a MIP can give you the edge over other people that are interested in the property.
Your offer may be more likely to get accepted if the seller is confident that the sale will not fall through because you have confirmation a lender will give you a mortgage for the amount required, in principle.
Getting a MIP is a good idea if you are not sure how much you will be able to borrow from a lender. Historically, the amount a lender would agree to lend would be based on a simple calculation, such as 4x the applicant’s salary. Now lenders take many other factors into account when they decide whether to lend to the applicant and to determine how much they are prepared to lend. For example, credit history, outstanding debt and other outgoings the applicant is committed to, will be factored into the assessment.
How reliable is it?
While obtaining a MIP will give you a good idea of how much you can borrow, it is not guaranteed that you will actually be able to borrow up to the agreed amount. At the MIP stage, a lender conducts a credit check. This means that the lender can verify your expenditure and identify any adverse credit (defaults, late payments, CCJs or Bankruptcies). Based on the declared income and verified financial commitments, an MIP can show your maximum mortgage available. However, once an application is submitted, other factors may affect the loan sum available to you such as changes to lending criteria, a down-valuation to your property to mortgage, etc.
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How to get a mortgage in principle
You should be able to get a mortgage in principle quite quickly when you request one from a lender or broker. If you have all of the required information, you may be able to get an instant MIP based on the information you provide.
What you need when applying
When you are applying for a mortgage in principle, you do not typically need to provide as much paperwork as you do for a mortgage application. For example, documents like bank statements are rarely requested at MIP stage. Lenders and brokers should request income proof, ID and Address Verification documents for all applicants to maintain their compliance with the Financial Conduct Authority.
Recent payslips are typically requested from employed applicants and the last 2 years of Tax Calculations and Tax Year Overview documents are typically requested from self-employed applicants as income proof. For ID Verification, an in-date passport or driving license document is sufficient. For Address Verification, a recent utility/ council tax bill or bank statement showing current address is sufficient.
How long does it last?
A MIP will usually last for between 30 and 90 days, but again this will be specified by the lender, so if you think you will need it to last longer than 30 days, make sure you choose a lender who will supply one that lasts for a longer period.
Questions you’ll be asked
When you apply for a mortgage in principle, you will be asked a set of questions to enable the lender to calculate how much they would be happy to lend to you. These questions will usually include details such as:
- current salary and employment status
- credit history
- address history
- current credit commitments and other outgoings
You may also be asked about the approximate property cost you are thinking of buying and how much deposit you will have for the mortgage.
Will you go through a credit check?
Lenders will either conduct a soft or hard credit search on your credit file following a MIP application. This is so that the lender can verify your declared financial commitments and compare them to your credit file. The purpose of this is to increase the reliability of the MIP issued in the attempt to provide an accurate maximum loan sum available.
A soft footprint does not leave a mark on your credit file, unlike a hard footprint that leaves a trail. If you are keen to avoid hard footprints, inform your broker and they will act accordingly. However, as long as there are not repeated searches on your credit file over a short period of time, credit footprints should not significantly damage your credit file.
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What happens once you have a MIP?
Once you have your MIP you will have a clearer idea of the price range of houses you are likely to be able to get a mortgage approved for. This means you can start your property search, or if you have already found a property you are interested in, you can arrange a viewing and put in an offer on a property that you want if you are at that stage.
If the seller accepts the offer, the next step is to get started with the mortgage application, including appointing a solicitor and getting your paperwork sent to the lender.
The lender will conduct a hard credit check as part of the mortgage application process.
Can I get a MIP from Boon Brokers?
Boon Brokers has a whole-of-market access to mortgage lenders in the U.K. Our purpose is to find our clients the best mortgage deals for their specific circumstances. As part of our service, we will arrange a MIP to enable prospective homeowners to start their journey of finding the most suitable mortgage for their new home.
We take the stress out of the mortgage process for our clients by arranging the Affordability, Agreement in Principle and ultimately the Mortgage Application when the client is ready.
Call us today to arrange a free phone or video consultation with one of our fee-free brokers to discuss your requirements further.