What does a decision in principle look like?

Understanding What a Decision in Principle Looks Like

If you’re planning to purchase a property, you may have come across the terms ‘decision in principle’ (DIP), ‘mortgage in principle’ (MIP), or ‘agreement in principle’ (AIP). A DIP or agreement in principle could help you make important decisions about your financial future and convince estate agents that your offers are realistic. So, what does an agreement in principle look like? And how can you use one to your advantage? We’ve put together a handy guide to help you get started:

What is a Decision in Principle? What Does an Agreement in Principle Look Like?

A decision in principle (DIP) or agreement in principle is an official written statement supplied by a bank or building society, explaining how much it might be able to lend you. The statement isn’t binding, but it should indicate how much you are likely to borrow, depending on your financial circumstances. Whether you’re planning to remortgage or are looking for your first home, a DIP could help speed up the process and strengthen your buying position.

Some lenders provide house-hunters with certificates when they offer a DIP or AIP, which can be shown to estate agents during the purchase process. DIPs tend to differ slightly from lender to lender. Generally, however, what an agreement in principle looks like may include one or more of the following:

• A brief statement indicating that the lender is willing to lend the amount of money you’ve applied for
• A confirmation that your decision or agreement in principle application was accepted
• A maximum figure the lender is willing to offer you

Why Apply for a Decision or Agreement in Principle?

Why obtain a DIP when you could just go ahead and apply for a mortgage? Well, it could actually reduce the amount of admin work you’ll need to do to secure a property. Securing a DIP or agreement in principle usually takes an hour or two, depending on your circumstances, and can reduce the time it takes to make an offer. With a DIP, you can feel more confident in your house-hunting decisions and avoid disappointing offer rejections further down the line. Other benefits include:

• Some estate agents only consider buyers who have obtained a valid decision or agreement in principle (particularly in Scotland)
• A DIP gives you a clearer idea of your spending limits at an early stage
• Avoiding mortgage rejections is important, as they may be added to your credit file and make future mortgage applications more difficult.

When to Apply for an Agreement in Principle

It’s advisable to apply for a decision or agreement in principle as soon as you decide to start house-hunting seriously. On top of the practical benefits you’ll gain, applying for a DIP will motivate you to reach your goal of homeownership. Before reaching out to lenders, however, you can use a quick mortgage calculator to obtain a ballpark idea of how much you might be able to borrow.

Will Applying for an Agreement in Principle Affect My Credit Score?

DIP applications involve credit checks. Depending on the lender, the check could either be a soft or hard check on your credit file. Soft checks aren’t visible to other lenders and won’t affect your score. Hard searches, however, are visible and may impact how other lenders view you. While your actual score shouldn’t drop, multiple rejections can make lenders more cautious.

How Can I Secure an Agreement in Principle?

You can apply for a decision or agreement in principle either directly through a bank/building society or via a mortgage broker. Mortgage brokers often represent the better option as they can compare multiple deals on your behalf and save you time. When applying, you’ll need to provide details about your occupation, income, and financial history. Have the following documents ready:

• Spending records, such as utility bills and credit card statements
• Income documents, such as payslips or bank statements
• Credit agreements and loan records
• Previous addresses from the past few years

Make sure all information is accurate to avoid having your agreement in principle rejected.

Do Agreements in Principle Cost Money?

Applying for a decision or agreement in principle is typically free of charge. Most mortgage brokers only charge clients once a full mortgage application has been approved.

Why Are Agreements in Principle Rejected?

Your DIP should be accepted if you’re in a strong position to purchase a home and have the correct documentation. However, agreements in principle can be rejected for several reasons, including:

• Deposit is too small
• Income is too low or inconsistent
• Unstable employment history
• High levels of existing debt
• Poor credit score
• Incomplete or inaccurate application

Sometimes, soft checks don’t reveal potential issues that could cause a rejection later, so it may be worth working with a lender that performs a hard check.

Can Estate Agents Use Agreements in Principle to Raise Property Prices?

In short, yes. Property prices aren’t legally binding until contracts are signed. Sellers may increase prices if they know how much you can afford from your agreement in principle. However, that doesn’t mean you should accept every offer—negotiating is common and could help you save money.

How Long Does an Agreement in Principle Last?

A typical agreement in principle lasts between 60 and 90 days, depending on the lender. If you don’t find a suitable property in that time, you can always reapply. Be sure to update your details if your financial situation changes during this period.

Please note: As a mortgage is secured against your home or property, it may be repossessed if you fail to keep up with repayments.

Need a Mortgage? Reach Out to WIS Today

If you need help with your property hunt or want to know what an agreement in principle looks like in your specific case, contact WIS today for free advice. Alternatively, try our mortgage calculators to estimate how much you can borrow.

FAQs About What an Agreement in Principle Looks Like