A Comprehensive Guide to a Decision in Principle
1. Introduction
As mortgage advisers at Simply Lending, we're frequently asked about the term 'Decision in Principle' (DIP) - what it is, why it's essential, and how it influences the mortgage process. Here, we aim to answer these questions, providing you with a comprehensive understanding of a DIP from our expert viewpoint.
2. What is a DIP?
A Decision in Principle, sometimes referred to as an Agreement in Principle or Mortgage in Principle, is an initial assessment from a mortgage lender. This statement essentially outlines the amount a lender may be willing to offer you based on an assessment of your creditworthiness and financial circumstances.
3. The Purpose of a DIP
A DIP serves two primary purposes:
Estimates Borrowing Capacity: It provides a rough guide of how much a lender might be willing to lend you, based on your financial situation.
Credit Assessment: A DIP involves a credit check which helps to determine whether the lender is likely to accept your credit history
4. How a DIP Works
Obtaining a DIP involves the following steps:
Filling Out an Application: The initial step involves completing an application form that requests personal, financial, and employment details.
Credit Check: When you apply for a decision in principle, the lender will carry out an initial review of your credit history.
Part of this process will involve them obtaining and sharing information with credit reference agencies. You can read more about how lenders obtain, process and share your personal data here;There are two types of credit checks - a 'soft' check that won't affect your credit score and a 'hard' check that leaves a mark on your credit file. Unfortunately, we cannot determine which type of search a lender will conduct, and it could be a hard search.
Issuing the DIP: If the lender considers you a credible borrower based on the credit check and other details, they issue a DIP stating the amount they may be willing to lend.
5. Key Points to Keep in Mind
It's important to remember:
Not a Guarantee: A DIP is an indicator of how much you might be able to borrow, not a final mortgage offer. The actual mortgage amount can change based on a more detailed evaluation of your financial situation.
Validity Period: Typically, a DIP is valid for 30-90 days. If you haven't found a property within this period, you may need to renew it.
Accuracy is Key: When applying for a DIP, ensure the information provided is accurate. Discrepancies between the DIP application and the actual mortgage application can cause complications or delays.
7. Conclusion
A DIP is an essential tool in the mortgage application process. It serves as a preliminary credit assessment and provides an estimate of your potential mortgage amount. This can help guide your property search and also boosts your credibility as a potential buyer, or if you are remortgaging will help give you a better idea of your options.
At Simply Lending, we're dedicated to guiding you through every step of the mortgage journey. For personalised advice and expert assistance, don't hesitate to get in touch with our team today.
