What is a mortgage in principle?
For most of us, arranging a mortgage is an important step towards buying a home. One term you may come across is a ‘mortgage in principle’. But what does it really mean? And how can one potentially help you buy the home you’ve set your heart on?
A mortgage in principle in a nutshell
A mortgage in principle is sometimes also known as a ‘mortgage promise’ or ‘decision in principle’. But whatever the term used, it’s a written statement from a mortgage lender or broker that sets out how much money you could potentially borrow - for your home purchase.
It’s important to remember that it isn’t a formal offer, isn’t guaranteed and will only last for a certain period of time – usually around 90 days.
How do I get a mortgage in principle?
Once you’ve found a suitable lender or broker, you can arrange to get a mortgage in principle. To provide this they’ll ask you for relevant, important information about you and your circumstances and may also choose to carry out a basic credit check. Often the whole thing can be sorted in a matter of minutes, and even if your lender needs a bit more information, it usually shouldn’t take more than a day or two.
The good thing about a mortgage in principle is you can use it show potential sellers that you have the ability to secure a mortgage and can realistically afford to buy their home.
Of course, it’s just one part of the whole house buying process. You can find out about the other steps you need to think about in our useful home buying guide.
Do I have to have a mortgage in principle?
When you’re house-hunting, you’re effectively up against other potential buyers. A mortgage in principle shows sellers, developers or estate agents that you’re a serious buyer who can genuinely afford the homes you’re viewing and possibly making offers on.
Knowing how much you can realistically expect to borrow also helps you focus and gives you the confidence to go and look at properties. That’s particularly important if you’re a first-time buyer. It’s also worth remembering there are schemes such as Help to Buy specifically created for people looking to get on the property ladder.
Securing a mortgage in principle is also reassuring for anyone with a less-than-perfect credit record. If you’re not sure if that applies to you, the Government’s Money Helper website can show you how to check your credit report.
Can getting a mortgage in principle affect my credit score?
While you can ask for a mortgage in principle from as many lenders as you wish, it’s worth knowing that each application may leave a mark on your credit file. If you apply online – which many people do for convenience – the system might not understand all the information you provide and automatically generate a rejection. That’s not good news.
So before you start it may be a good idea to speak to the lender or a mortgage adviser. Ask them any questions you have to be sure you really understand what you are signing up for and, if possible, make the application in person.
Before a lender decides to fully approve your mortgage, they’ll run a complete and detailed credit check. They’ll also look at your payslips and bank statements. When it comes to this full credit check, it can be worth asking if it’s a ‘soft’ or ‘hard’ check. A ‘soft’ credit check is a background one that won’t negatively affect your credit score. However numerous ‘hard’ checks over a short period can lower your credit score and stay on your report for four years.
What do I need to keep in mind about a mortgage in principle?
The most important thing to remember is that a mortgage in principle is not set in stone.
It’s based on a limited amount of information, which means your lender could potentially change their original mortgage in principle decision.
What should I do next?
The quick answer is do your research. The mortgage market is active, with new deals popping up and existing ones changing. So keep your eye on the news and check out websites such as MoneySavingExpert, MoneySupermarket and Which?
If you’re buying a home for the first time, it’s a good idea to get solid professional help, so take a look at our article about speaking to a mortgage adviser.
And don’t forget that, whether you’re a first-time or existing buyer, we have a wide range of offers to help you make your next move.
This guide to mortgages was produced in collaboration with L&C Mortgages, the UK’s leading fee-free mortgage experts.