Getting a Decision in Principle (DIP)
A mortgage agreement, in principle, will provide information to a lender to enable them to assess your income, spending habits, credit score and other factors. The lender will then confirm whether you meet their criteria and confirm the amount they would be potentially prepared to lend.
If you are planning on buying your first home or selling an existing property to move on to your next home, a Decision in Principle (DIP), also known as an Agreement in Principle, is essential.
A Mortgage in Principle, or a Mortgage Promise, is a document that indicates a sum of money a lender will likely offer you based on the information supplied and a credit search (generally a soft search).
The amount agreed is based on the preliminary information provided to the lender. Although having a DIP is not mandatory, more and more estate agents will increasingly require you to have an agreement in place prior to any offers being put forward to a vendor.
The mortgage agreement helps to demonstrate that the buyer has serious intent and the financial capability to progress with the offer.
The amount you’re eventually offered following a full mortgage application could change following a more thorough assessment of your income, spending habits, credit score and other factors.
Soft credit check
The application for a DIP will generally involve a credit check. With most lenders, this will be conducted on a soft search basis. This, then, does not impact your credit score.
Many factors are considered during the decision-in-principle process, and this will include a review of your financial commitments, payment history, inconsistencies in your credit file, overall affordability, loan to value and the lender considering whether these factors meet their criteria.
Having undergone the process of gaining a mortgage agreement it will assist you with your house hunting. The benefits are that you know you have a mortgage agreement (peace of mind) and you know that you have checked out your affordability and lender criteria. Equally, estate agents and vendors will be more confident accepting an offer as you have undergone the process.
Providing your mortgage agreement to estate agents helps to demonstrate that you’re a serious buyer.
Typically, a DIP lasts between 60 to 90 days, depending on the lender’s policy.
Documentation requirements
To support your DIP, MMPE will need sufficient supporting information and documentation to carry out lender affordability and criteria checks.
This means gathering documentation such as proof of income, your last three months’ payslips if employed, or your last two years’ tax calculations and overviews if self-employed. Your limited company accounts may also be required if you run a business. The documentation will be your last three months’ bank statements detailing income and general expenditures for all applicants. Proof of ID, proof of address, Visa status if not a UK or EU Citizen and proof of deposit.
Supporting information will include employment details, address history, income and expenditure, retirement age and other financial commitments.
MMPE provides a service where we review all your documentation and personal financial information to ensure it will pass lenders’ due diligence.
The process is then to review your personal loan requirements versus lender criteria and affordability before providing research on available mortgage schemes and then gaining your DIP.
It is important to know that lenders have very differing attitudes to affordability, so what one lender may consider affordable, another may not. This means that there can be huge variances, so if you are looking to extend your borrowing ability, getting this reviewed professionally will very much assist.
Equally, criteria vary from lender to lender. As an example, if you are buying a flat or apartment, it is important to check out factors such as the lease term remaining and confirm the ground rent and service charges. These can have a significant impact on the lender’s decision.
What if you have a low credit score or impaired credit with possibly missed payments or defaults? Again, lenders, criteria will differ significantly.
The point is that if you are serious about purchasing a property, it is essential to be prepared. Do your homework to check out what can and cannot be achieved from a lending perspective. Working with the likes of MMPE will assist you with guidance and advice to help you navigate what can be a complex process.
Applying for your DIP
Applying for a DIP is made easier by using the services of MMPE, as we will make the application for you, having completed all due diligence and research. As an independent mortgage broker, this gives you access to most of the UK market.
Whilst you can apply directly online for a DIP, the advantages of MMPE as your broker completing the process for you will provide you with the benefit of lender criteria and affordability searches before any mortgage agreement.
This will save a lot of time and effort and potentially lots of soft searches on your credit file.
Once your mortgage agreement, in principle, is agreed to by the lender, MMPE will provide you with a mortgage certificate. This is a valuable document that you should keep demonstrating that you have undergone the process and are serious about buying a property.
Official mortgage offer
Once you’ve found a property you’re interested in and have had an offer accepted. It is important to speak with MMPE as soon as possible to confirm your agreed price, update any documentation requirements, and confirm your deposit is in place and the amount.
Once your offer has been agreed upon, MMPE will then review your requirements and prepare for your updated research. In many cases, mortgage rates will have changed, and research will need updating before applying for a new DIP and making your full mortgage application.
The process is then to make a full mortgage application to the appropriate lender. The lender will carry out their due diligence and underwriting, and a survey will be carried out on the property before the lender issues a formal mortgage offer.
It is important to understand that the lender may ask additional questions or require further supporting documentation to support your application. Therefore, it is essential to be prepared and provide MMPE with all requested information and supporting documentation to make the process as quick and efficient as possible.
