What is a Mortgage Decision in Principle and why should you get one?

What is a Mortgage Decision in Principle and why should you get one?

 

A Mortgage Decision in Principle, often called a DIP, Agreement in Principle or AIP, gives an indication of how much a lender may be prepared to lend before you submit a full mortgage application.

It can be particularly useful if you are buying a property and want to understand your likely borrowing capacity before making an offer.

A DIP is not a formal mortgage offer and does not guarantee that a lender will ultimately approve your mortgage. The lender will still need to assess the full application, check supporting documents and make sure the property is acceptable security.

What information is needed for a Decision in Principle?

The exact information varies between lenders, but a mortgage broker will normally need details including:

• Your full name and date of birth

• Your current address and previous addresses, usually covering the last three years

• Employment details and job title

• Basic salary

• Bonuses, commission, overtime or other income

• Self-employed income where applicable

• Existing mortgages

• Loans, credit cards and other financial commitments

• Childcare or maintenance costs where relevant

• The amount of deposit available

• The approximate purchase price

• The mortgage amount required

• The proposed mortgage term

Lenders use this information to assess affordability and, in many cases, carry out a credit check. A DIP normally involves information about income, spending, deposit and address history.

Does a lender need payslips and bank statements for a DIP?

Not necessarily.

Many lenders can issue a DIP based on information entered by the broker without seeing all of the supporting documents at this stage.

However, it is sensible for a broker to understand the client's income properly before submitting a DIP. This is particularly important where income includes bonuses, commission, overtime, dividends, retained company profits, RSUs or income from several sources.

Once the case proceeds to a full mortgage application, lenders will normally require supporting evidence such as payslips, bank statements, accounts or tax calculations.

Can a mortgage broker do a DIP without your permission?

A broker should not simply submit a DIP or credit search with a lender without the borrower's knowledge and authority.

A DIP can involve personal financial information being passed to a lender and may involve a credit search. Most lenders now use a soft credit search at DIP stage, although lender processes vary.

For example, Nationwide for Intermediaries currently states that its DIP leaves a soft footprint, while a hard credit footprint is made when the full mortgage application is submitted. Nationwide also specifically tells brokers that they should explain the credit-search process to their client before submitting the application.

Borrowers should therefore know which lender their broker intends to approach and understand what type of credit search may be carried out.

What is the benefit of having a Mortgage Decision in Principle?

There are several advantages.

A DIP can give you a much clearer indication of how much you may be able to borrow and therefore what price range you should be looking at.

It can also make you look more organised and prepared when dealing with estate agents.

In a competitive situation, an estate agent or seller may feel more comfortable accepting an offer from a buyer who has already spoken to a mortgage broker and obtained a DIP.

MoneyHelper says a mortgage in principle can help establish a realistic property budget and may be requested by estate agents when buyers make offers.

It can also identify potential problems early. For example, a lender may not accept a particular income type, level of borrowing or credit profile.

Finding this out before you have agreed to buy a property can save considerable time later.

Does a DIP guarantee I will get the mortgage?

No.

A DIP is an initial lending decision rather than a formal mortgage offer.

When you submit the full application, the lender will normally verify your income and expenditure in more detail and assess the property being purchased.

A borrower could therefore pass the DIP but still have the full mortgage application declined because of the property, the valuation, discrepancies in the supporting documents or a change in their circumstances.

How long does a Mortgage Decision in Principle last?

It depends on the lender but DIPs commonly last 90 days.

If the DIP expires before you find a property, it will normally be possible to obtain another one.

However, if your income, debts, deposit or circumstances have changed, the borrowing figure could also change.

When does a DIP become a full mortgage application?

A DIP does not automatically turn into a full mortgage application.

Once you have found a property, had an offer accepted and selected the mortgage you want, your broker can proceed to the lender's Full Mortgage Application, often abbreviated to FMA.

At this stage considerably more information is normally required, including the exact property details and supporting documents.

The lender may also arrange a mortgage valuation and carry out further underwriting before issuing the formal mortgage offer.

Nationwide, for example, allows brokers to obtain a DIP before the client has found a property. Property security details then have to be entered before progressing to the Full Mortgage Application.

Does a Decision in Principle secure or save a mortgage rate?

Usually, no.

With most mortgage lenders, obtaining a DIP does not reserve the mortgage product or protect the interest rate.

If the lender increases or withdraws its mortgage rates before the product has been formally reserved as part of the application process, the borrower may have to choose from the new range.

This distinction can become particularly important when mortgage rates are changing quickly.

Nationwide for Intermediaries is different

Nationwide for Intermediaries has a useful facility that allows brokers to reserve a mortgage product without submitting the full mortgage application.

The broker first obtains the DIP and can then select "Reserve Product" within Nationwide's intermediary system.

Nationwide currently states that if the mortgage offer is issued within 90 days of the original product reservation date, it will honour the reserved rate even if mortgage rates subsequently change.

This can be particularly useful if Nationwide announces that one of its competitively priced mortgages is being withdrawn or increased.

It is important to distinguish between obtaining the Nationwide DIP and actually reserving the product. The DIP itself does not automatically secure the mortgage rate; the broker must complete the product reservation process.

What are the benefits of getting a DIP through a mortgage broker?

One of the main advantages of asking an experienced mortgage broker to arrange the DIP is that the broker can assess which lender is most appropriate before submitting it.

This can be important because lenders have very different rules around affordability, income multiples, bonuses, commission, self-employed income, credit commitments, property types and maximum loan sizes.

Simply obtaining a DIP from the first bank you approach does not necessarily mean that lender will offer you the largest mortgage or the most suitable deal.

A broker can assess your circumstances, compare lenders and work out where the application is most likely to fit.

MoneyHelper explains that an independent mortgage broker can discuss mortgage options from multiple providers rather than being restricted to one bank or building society.

Why arrange your Decision in Principle through Trinity Financial?

Trinity Financial's brokers can assess your income, deposit and financial commitments before deciding which lender to approach.

This can be particularly valuable for borrowers with more complicated circumstances, including:

• Large mortgage requirements

• Bonuses and commission

• Self-employed or company director income

• Multiple sources of income

• High levels of variable pay

• Existing credit commitments

• Interest-only borrowing

• Unusual or higher-value properties

• First-time buyers trying to maximise affordability

Which lender is most likely to provide the borrowing you need on suitable criteria and at a competitive rate?

Once a property has been found, Trinity Financial can then progress the case from DIP to full application and deal with the lender's underwriting requirements through to mortgage offer.

A carefully selected DIP can therefore provide more than a borrowing figure. It can help buyers understand their budget, identify potential problems early and put them in a stronger position when they find the right property.

Speak to Trinity Financial's mortgage brokers if you would like us to assess how much you could borrow and arrange a Decision in Principle with a suitable lender.

Speak to a Trinity Financial adviser today

The mortgage market moves fast — and the right advice can make a significant difference to the rate and deal you secure. Get in touch with our team to discuss your options.

Call Trinity Financial on 020 7016 0790 to secure a fixed or tracker rate mortgage, book a consultation, or use our appointment calendar

The information contained within was correct at the time of publication but is subject to change. It is for general information purposes and is not advice.

Your mortgage is secured on your property. Your property may be repossessed if you do not keep up repayments on your mortgage