Getting your mortgage in principle means your offer will be taken more seriously when you're trying to buy a property. However, if the lender performs a hard search, this could reduce your credit score.
What is a mortgage in principle?
A mortgage in principle (MIP) is also known as a:
- decision in principle (DIP)
- agreement in principle (AIP)
A MIP is when a mortgage provider indicates that they’d be willing to lend you a certain amount of money to buy a property, based on a few checks - including a credit check. A few things your lender would need to know to run the mortgage in principle would be:
- your employment status
- your income
- how much the potential property you want to buy costs
- if you have any debts
- bank statements
- credit history.
A MIP doesn’t guarantee you’ll get a mortgage offer, but it’s a good indicator and can boost your standing as a prospective buyer.
Some agents will require you to have one, and in Scotland, it’s essential. Since a MIP isn’t a guaranteed offer, the lender could change their minds or amend the terms of the offer when you apply for the real thing. For example, when they run the full application, it may be that something doesn’t meet their criteria for lending, which they didn’t pick up when they carried out your MIP.
Hard search vs soft search
It's good to know which lenders do a hard and soft search before you apply for your MIP.
If the lender uses a hard search, then it means you should hold off applying until you're ready to make an offer on a property.
A MIP generally is valid for around three months, so if you don't get an offer approved within this window, then you'll have to apply for a new one. And if the lender performs a hard search, then you could end up damaging your score.
If the lender performs a soft search, then this is less of an issue.
We’ve checked which of these lenders run soft and hard searches, however, this could change so make sure you know which type of search it is before you apply.
Which lenders do a soft search?
A soft search means only you can see that a search has been performed, so it won’t affect a future lender’s decision. We've made a list of lenders who perform soft searches:
- Clydesdale bank
- HSBC UK
- Yorkshire Building Society.
This could change so check with the lender before applying.
Which lenders do a hard search?
Hard searches leave a mark on your credit history for future lenders to see. Too many hard searches can reduce your credit score. These lenders do a hard search:
- Coventry Building Society
- The Principality.
Again, check before applying as many lenders are moving to a soft search.
When should I apply for a mortgage in principle?
If you’re not serious about moving just yet you should wait. Applying for a MIP too early means the interest rates or your situation could change before you make an offer.
However, a MIP can help you get an idea of how much you’d be able to borrow and how much deposit you’d have to put down as well.
How do I apply for a mortgage in principle?
You can apply for your MIP through a bank, building society, or a mortgage adviser. They’ll let you ask you for some documents and carry out a credit check. Once this is complete they’ll let you know how much you’d be able to borrow.
If all goes well, you’ll have to provide a bit more information to get your full mortgage application done.
Make sure to check whether your lender will run a hard search or soft search on your MIP before you apply.
Read on to see how long it can take to buy a house.
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