If you’re starting the process of buying a house, you may have come across the term Decision in Principle or DIP for short.
A Decision in Principle is provided by a specific mortgage lender and indicates how much they could lend you. It’s a useful document to have when you’re house hunting and deciding what’s affordable.
This guide will explain what a Decision in Principle is, who might need one and how to apply.
What is a mortgage Decision in Principle?
A mortgage Decision in Principle (DIP), also known as an Agreement in Principle (AIP), is a statement from a lender indicating that they may be willing to lend you a certain amount towards buying a property.
Their decision is based on your income, regular outgoings, and credit history.
The amount shown on the DIP is not guaranteed, but it gives you a good heads up of what mortgage you can qualify for.
By approaching estate agents with a mortgage in principle in place, you’ll be viewed as a serious buyer with the potential to secure the necessary funds.
What information is needed?
You will usually need to provide:
- Your personal details
- Your employment status
- Your income
- Your outgoings
- Your deposit amount
- The property value or purchase price
- You may also be asked some questions about your credit history
It’s important to note that each lender has their own criteria for granting a Decision in Principle, so the questions may differ slightly.
How to get a DIP
A DIP is issued by a mortgage lender, based on the information given to them.
To apply for a DIP you can approach a lender directly, and there options to do this online or over the phone.
Alternatively, your mortgage adviser can organise this for you. The big advantage here is that your broker will arrange a DIP with the lender most likely to give you a mortgage.
This selection will be based on your employment situation, income, credit history, loan to value, property type, etc, etc.
Don’t forget that the aim of a DIP is then to go back to the same lender with a full mortgage application, with the expectation of securing a mortgage offer.
Should you get more than one Decision in Principle?
It is possible to apply for multiple DIPs and approaching different lenders could give you more options.
Doing this too much could harm your credit profile though.
Our article, Should you get more than one Decision in Principle?, explains what happens if you apply for more than one DIP or AIP.
When is a Decision in Principle needed?
You do not have to get a DIP before applying for a mortgage.
If you want, you can just find a house to buy and then make a full mortgage application. And wait…
The advantage of getting a DIP early in the process is it will confirm what level of mortgage is achievable for you.
This will save you the disappointment of viewing properties that are out of your mortgage range.
Having a DIP in place will also show estate agents and sellers that you are a serious buyer.
How long do they last for?
How long a DIP/AIP is valid for will depend on the lender but they usually last between 30 to 90 days. They are lender specific, so a Halifax DIP is only useful if you go back to the Halifax.
Are they the same as a mortgage offer?
No. A Decision in Principle is merely an indication of how much a lender would lend, subject to further checks.
Will my credit rating be affected?
When you apply for a Decision in Principle, some lenders will do a ‘soft’ credit check. This means that they will look at your credit history but it won’t be recorded on your credit file and so won’t affect your credit score.
Others require a hard credit check, which may have an impact on your credit score if you fail.
If you’re concerned about failing the credit check, find out which type of check your mortgage provider requires, or speak to a mortgage adviser beforehand to find a mortgage provider that only requires a soft credit check.
You will find more useful information in our Credit Report Guide
How reliable is a decision in principle?
Getting a DIP does not guarantee that your mortgage application will be approved.
However, they are an extremely useful and reliable way of seeing whether a particular bank will lend you the mortgage you need.
DIPs are very easy to apply for but are based on limited information.
If you are worried about a specific issue then discuss this with your mortgage adviser. It might be a good idea to also request a copy of your credit report.
If necessary, they can talk this through with the lender directly before a full application is made.
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