What is a mortgage in principle?


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There are lots of ways to make sure the house buying experience is as hassle-free as possible.  Here, we explain everything you need to know about a mortgage in principle, and how it could potentially assist you in the home-buying process.

A mortgage in principle explained

A mortgage in principle, otherwise known as a ‘mortgage promise’ or a ‘decision in principle’, is a written statement from a mortgage lender or broker confirming how much money you could theoretically borrow for your home purchase. It’s not a formal offer (which means it’s not guaranteed), and only lasts for a specific period, usually around 90 days.

To give you a mortgage in principle, the lender or broker will take some details about you and your circumstances, and may also do a basic credit check. This is then used by you during the house buying process, to show that you are theoretically able to get a mortgage and therefore can afford to buy a home.

Why get a mortgage in principle?

A mortgage in principle is proof that you can afford the homes you are viewing and making offers on. If you’re competing against other buyers, this can give you the edge against other people viewing. By showing the vendor, developer or estate agent that you’re serious and in a genuine position to buy, it means you could be quicker to secure a sale.

As a buyer, a mortgage in principle can also give you the confidence to go and look at properties, knowing that you can afford them. This is especially important if you’re a first-time buyer or have a poor credit history, and need reassurance that a mortgage lender will consider your application.

It is possible to apply with multiple lenders, although each application you submit will leave a mark on your credit file. Applying online, which it is perfectly easy to do, can throw up other issues as the system might not be able to understand certain information and send you an automatic rejection.

To avoid being surprised and negatively affected by an online credit check, speak to the lender and see what is involved with an application. Be cautions and, if possible, make the application in person, asking the lender as many questions as you can to really understand what you are signing up for.

 

What do you need to keep in mind about getting a mortgage in principle?

First, remember that a mortgage in principle is not set in stone, and is based on only a limited amount of information. Before deciding to approve your mortgage, a lender will run a full and detailed credit check, as well as checking your payslips and bank statements which could potentially change their offer.

Ask if the credit check is ‘soft’ or ‘hard’. A ‘soft’ credit check is a background check that won’t negatively affect your credit score, while multiple ‘hard’ credit checks in a short timeframe will lower your score and stay on your report for four years. Each report reveals the same details, with the only difference being the mark left on your credit score.

What’s next?

Most mortgage in principle applications are free and only take five minutes. You can apply anytime online with many lenders or with a broker, but make sure you do your research first. Mortgage deals are continually changing, so make sure you keep updated by checking relevant news outlets and independent websites.

This guide to mortgages was produced in collaboration with L&C, the UK’s leading fee-free mortgage experts.