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Homeowners looking to move home or remortgage their existing property will need to arrange finance to cover the cost. For most people, this means applying for a mortgage. But how do you know if you’ll be approved?
You can find out how much a lender will loan you by applying for a decision in principle. However, before any lender will give you a decision they need to confirm some details with credit reference agencies. This often leads to the question; does getting a decision in principle affect credit score?
In this guide, we're going to explore what is involved in obtaining a decision in principle. We’ll look at what information you have to provide, what checks are carried out, how long the agreement lasts and, most important of all, whether or not the application process impacts your credit score.
A decision in principle, sometimes known as an agreement in principle, is a way for you to find out how much a lender is prepared to loan you. Applying for a decision in principle is a simple process with most lenders asking you to confirm your address and provide details of your income and outgoings.
A decision in principle is not legally binding and does not tie you into a particular type of loan or lender. However, this applies to both parties, as a decision in principle is also not a guarantee of a loan from the lender. It is simply a tool for you to find out how much a lender will be prepared to loan you based on the information you provide.
Affordability calculators are a useful tool for assessing how much you can afford to borrow. This can help you when searching for a home to buy. But when it comes time to make an offer, most estate agents require that you either have proof of funds or a decision in principle in place before accepting it.Affordability Calculator
A decision in principle is valid for 90 days from the date of issue. This assumes the details you supplied are correct and there have been no changes in your circumstances since applying for the agreement. If your financial circumstances do change within 90 days you should apply for another decision in principle.
When applying for a decision in principle the lender will ask you questions about your income and outgoings. They will also confirm your details are correct by cross-referencing them with credit reference agencies. This could take the form of a hard or soft check so it's important to understand the difference.
A hard check is a complete search of your credit history. This will show up any loans, credit card debt, CCJs and late payment notices. A hard check will also leave a footprint on your credit report which other lenders can see. Too many hard checks are often seen as a warning sign from lenders and may impact your ability to get a loan.
A soft check is simply used to confirm the details you provided in the application. It does not show your outstanding debt, credit history or CCJs. Crucially, a soft check is also not visible to lenders on your credit report. So you can have as many soft checks as you like and it will not impact your ability to get a loan.
All lenders need to ask your permission before carrying out a credit check. Most lenders only require a soft check to provide a decision in principle. But this is not always the case, so you should ask what type of credit check will be carried out before agreeing. In some cases, it would be wise to refuse a hard credit check for a decision in principle.
No, a decision in principle is simply a way for you to know how much a lender is prepared to loan you. It is not a guarantee of a loan. When you are ready to apply for a mortgage you will be asked to provide proof of income and outgoings. This is used by the lender to assess whether you can afford the monthly repayments.
Before a firm mortgage offer is made a hard check of your credit history will be carried out. Any anomalies that show up on the credit search may result in your application being refused, regardless of whether you have been supplied with an agreement in principle. At the end of the day, a lender can refuse your application for any reason.
No, the idea behind obtaining an agreement in principle is to see whether a lender would be prepared to fund your mortgage without having to go through the full application process. However, the information you provide must be accurate. There is little to gain from obtaining a decision in principle under false pretense.
So if you have had a bankruptcy order or CCJ within the last six years, or if your credit history shows any late payment or default notices you should make the lender aware of these during the application process. This will ensure your decision is accurate and reduce the risk of your application being declined later.
Most lenders allow you to apply for a decision in principle for free online or by phone. In most cases, the decision will be issued the same day. Some lenders supply them within a few minutes.
You typically need to supply the following information:
Personal details: Name, address, date of birth etc.
Monthly income: Salary, pension, investments etc.
Monthly outgoings: Living expenses, credit cards, loan agreements etc.
Credit history: You will be asked about any CCJs or bankruptcy orders in place.
Note: You do not have to provide proof of income or outgoings at this stage but you should provide an accurate picture of the state of your finances.
So, in answer to the question: does getting a decision in principle affect credit score? In most cases, it does not. But you should always ask what type of credit check will be carried out before agreeing to a search.
If you are looking to remortgage your home or are keen to make an offer on a new property and would like to know if you can secure funding to move forward, obtaining a decision in principle is the next step.
The mortgage advisors at WIS Mortgages specialise in finding mortgages for contractors, self-employed individuals and ex-pats that often find it difficult to obtain a mortgage from high-street lenders. We’ll evaluate your personal circumstances to find the most suitable lender before applying for a decision in principle to prove funding is available.
Get in touch with a WIS Mortgage advisor today for a free consultation by completing the contact form here, or give us a call on 020 3011 1986.Contact Us
As a mortgage is secured against your home/property, it may be repossessed if you do not keep up with the mortgage repayments.