What is a Decision in Principle (DiP)?
7th Feb 2024
What is a Decision in Principle (DIP)
In the context of obtaining a mortgage, a lender may provide a decision in principle, also known as a mortgage in principle or agreement in principle. This is a preliminary decision that indicates the amount of money the lender is likely to lend to you, the borrower, based on a basic assessment of your financial situation.
Is a Decision in Principle the same as a mortgage offer?
No, a Decision in Principle is not the same as a Mortgage Offer. They represent different stages in the mortgage application process.
- Decision in Principle: a DIP is a preliminary assessment made by a mortgage lender based on basic information provided by you. The lender evaluates factors such as income, credit history, and other financial details to give an indication of how much they might be willing to lend. A DIP is not a formal offer, and it does not guarantee that the lender will ultimately approve the mortgage application. It serves as a guide for you to understand your potential borrowing capacity and can be useful when house hunting. Note, that a Decision in Principle will typically have an expiration date. If you don’t progress with a full mortgage application within that time, you will need to reapply for another Decision in Principle. It’s worth noting that a Decision in Principle is also completed by a lender for a remortgage as well as a purchase.
- Mortgage Offer: A mortgage offer, on the other hand, is a formal and binding document issued by the lender after a thorough assessment of your financial situation and the property in question. The lender conducts a more detailed review, including a valuation of the property, and may request additional documentation. Once satisfied with the information provided, the lender issues a mortgage offer, outlining the specific terms and conditions of the loan. This document is legally binding, and both you and the lender are expected to adhere to its terms.
What do I need to get a Decision in Principle?
To obtain a Decision in Principle you typically need to provide some basic information to the mortgage lender. This can vary, but generally you’ll be asked for the following:
- Personal information: full name, date of birth, contact details
- Financial information: employment details, income details (salary, benefits, pension) and financial commitments (childcare, loans)
- Credit history: information about your credit history including any outstanding debts
The information provided during the Decision in Principle stage helps the lender offer an initial indication of the amount they might be willing to lend you. Keep in mind that the final mortgage offer is contingent on a more detailed examination of your financial situation and the property you intend to purchase.
Does the lender carry out a credit check?
A lender will typically carry out a soft credit check which does not affect your credit rating. However, some lenders may conduct a full credit search at Decision in Principle stage which will leave a footprint on your credit report, so it’s worth checking when comparing lenders. If you then proceed to apply for a mortgage, a formal credit check will be carried out by all lenders which leaves a footprint on your credit report.
What happens once you secure a Decision in Principle and find a property?
After receiving a Mortgage Decision in Principle (DIP), you are in a better position to understand the approximate amount a lender may be willing to lend you. The typical process to securing a mortgage is as follows:
- Property search: Armed with the information from the DIP, you can confidently house-hunt within the budget provided. This can make the process more efficient as you can focus on properties that align with the amount you’re likely to be approved for.
- Formal mortgage application: When you find a property and are ready to proceed with the mortgage application, you’ll need to submit a formal application to the lender. This involves providing more detailed information and documentation about your finances.
- Credit checks and affordability assessment: The lender will conduct a thorough assessment of your credit history, financial situation, and the property itself. They may request documents such as payslips, bank statements, and proof of identity. The lender will assess your ability to afford the mortgage based on your income, expenses, and other financial obligations.
- Valuation of the property: The lender may arrange for a valuation of the property you intend to buy. This is to ensure that the property’s value is in line with the purchase price and to assess its suitability as collateral for the mortgage.
- Mortgage offer: If the lender is satisfied with the results of the assessments, they will issue a formal mortgage offer. This document details the specific terms and conditions of the mortgage, including the loan amount, interest rate, repayment terms, and any special conditions.
- Legal process: Your solicitor or conveyancer will handle the legal aspects of the property purchase, including searches and contracts. They will also ensure that all legal requirements are met.
- Completion: Once all the necessary checks and processes are complete, and both parties are ready, the mortgage can proceed to completion. This is when the funds are released, and ownership of the property is transferred to you.
It’s crucial to carefully evaluate your options and, if possible, seek professional guidance to navigate the mortgage application process.
At 3mc, we have a team of expert advisers who can discuss all your mortgage requirements. If you would like to discuss your options, give the 3mc team a call on 0161 962 7800.
All calls are recorded for training and monitoring purposes. 3mc for intermediaries only.
*Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register https://register.fca.org.uk/s/ under reference 302992. Please note: The FCA do not regulate Business Buy to Let Mortgages.