This article is for information purposes only and does not constitute advice.
When you’re applying for a mortgage, there’s a lot of jargon to get your head around. One of these is the DIP or decision in principle. Almost every mortgage applicant will need one if they want to prove themselves to a lender. But if you’re new to the process you might be wondering what all the fuss is about.
In this post, we’ll explain what a DIP is, why having one can be a boost for your mortgage application, and give you some tips on how to make sure your DIP goes as smoothly as possible.
What is a Decision in Principle (DIP)?
A decision in principle is a written estimate from your lender (that’s your bank or building society) of how much they might be able to lend you towards a mortgage.
You might hear it called a mortgage in principle, agreement in principle (AIP), or a mortgage promise. All of these words are referring to the same thing.
Why should I get a decision in principle?
While a decision in principle isn’t compulsory for a full mortgage application, having one certainly won’t hurt. Having a DIP tells lenders that you’re serious about applying for a mortgage. It can also give you some reassurance about what you’re able to afford. This can stop you from applying for a mortgage that’s too large and being rejected, leaving your credit file intact for future mortgage applications.
What’s more, some estate agents or other sellers will only consider a mortgage application if you’ve got a DIP in place, so having one means you can have more options available.
4 Tips for your Decision in Principle
A DIP can take less than 24 hours to come through. Here are some things to keep in mind if you want to keep to this short timeline.
Have Your Information Ready
A decision in principle has a lot in common with your full mortgage application. Like a full mortgage application, you’ll be asked to provide information, including:
- Income (including accounts if you’re self-employed)
- Spending records (utilities, subscriptions, etc)
- Details of credit agreements (e.g loans, credit cards, current mortgage if you have one)
- Previous addresses for the past 3 years
Hard and Soft Searches: Know the Difference
To get a decision in principle, you’ll need a credit check. However, not all credit checks are created equal; knowing whether your credit check is a hard or soft search is important.
A soft check means you have nothing to worry about in terms of it being visible to other lenders in the future. However, a hard check leaves a footprint on your file, which other lenders will be able to see.
If you only need one DIP, a hard search shouldn’t cause any issues. However, multiple hard searches on your credit file can make you seem like a risky prospect to some lenders. By speaking to a specialist adviser, you can make sure you’re working with a lender that fits your circumstances.
A survey conducted by Which? in July 2019 revealed that out of 3,000 homeowners, 53% got a mortgage in principle before applying for their mortgage. Most estate agents will ask for proof of funds when you start house hunting – and a DIP can provide just that. All in all, a DIP can make you a more attractive prospect for estate agents or sellers. This is because it shows them you’ll be able to afford the property they’re trying to sell you. This takes yet another bit of hassle out of the house buying process.
It’s “In Principle” For a Reason
Just because you’ve got a decision in principle, don’t be fooled into thinking you’ll be guaranteed acceptance on your full mortgage application accepted. As explained above, a DIP is just there as a guide to let you – and anyone you work with when buying a house – know what you can afford. If there’s a change in your circumstances between your DIP and full mortgage application – for example, a new job or a county court judgement – then this will affect your chances of being accepted.
Getting a decision in principle might not be a required part of the house buying process, but it can help you get taken seriously when you’re putting in offers, and let you know how much you’ll be able to afford. Whoever you get it from and whatever it’s called, make sure you have everything ready to make the process go as smoothly as possible.
Want to start your mortgage journey? Contact Finance Advice Centre today to speak to one of our specialist advisers.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage repayments