Mortgages In principle: Your first step to home ownership
What MIPs are, and why you need one ahead of your first viewing
Waqas Ali
22 May 2024
2 min read
What is a Mortgage in Principle?
A Mortgage in Principle (MIP) - also knows as an ‘Agreement in Principle - AIP’ or ‘Decision in Principle - DIP’ is the green light on your journey to homeownership. It's essentially a thumbs-up from a lender, indicating you're financially fit to buy a home.
The mortgage process has two main stages: the MIP and the full mortgage application. The MIP stage involves your broker entering your income and expenses into an application, and the lender running a credit check to see if your finances meet their criteria.
The MIP is the lender's provisional promise to lend you the money, assuming all the information you've provided checks out when you make the full application, which includes submitting documents like bank statements and payslips.
Once you have an MIP and your offer on a home is accepted, your broker will move forward with the full application. This is when the lender gets all the details like the property address and solicitor's information.
Why Should Every First-Time Buyer Start with a Mortgage in Principle?
When you're ready to buy your first home, having a Mortgage in Principle (MIP) is crucial—not just because agents require it to consider your offer, but for several other important reasons.
Agents want to know you're serious, and sellers need to trust you can seal the deal. Having an MIP says, 'Hey, I mean business—I've got my finances sorted.' It shows sellers that you've done your homework, assuring them that you're likely to secure financing and be able to follow through with the purchase (which can take anywhere from six weeks to six months).
In most situations, there are multiple buyers and sellers connected in a series of linked transactions, called a chain. Usually, sellers depend on the sale of their current home to move to a new property. This means that everyone involved needs to trust that the buyer can complete their purchase.
Having an MIP is your roadmap to understanding what you can realistically afford. It's like getting a sneak peek into your financial future before you even make an offer. It also benefits you by clarifying how much you can really spend. Even if you're not looking to borrow the maximum amount possible, it's crucial to understand your true budget. This helps you make informed decisions on what might be the biggest investment of your life.
What do I need to get one?
Nothing! In order to obtain an MIP, you only need to know your personal information, at this stage; documents aren’t required. Documents can always help your broker so they can carry out more research, but ultimately a broker does not require any form of documentation to obtain an MIP.
When do I need it?
You should get your Mortgage in Principle (MIP) early in your home-buying journey - as you start to view properties. Once you have a clear idea of your approved budget, you can confidently view properties that fit within your financial limits. Additionally, obtaining an MIP is free—neither brokers nor lenders charge for this service. Most lenders perform a soft credit check to issue an MIP, which means it won’t affect your credit score. Therefore, securing your MIP early is essential for a smooth and assured property search.
So, consider this:
- It's free of charge.
- It provides a verified document that confirms how much you can borrow.
- It boosts your confidence, making house hunting a more enjoyable experience.
So, if you're ready to take the leap into homeownership, start with an MIP—it's your key to unlocking the door to your first home.
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