Does a Mortgage in Principle Mean You Will Be Accepted?

In the realm of property purchasing, one of the most frequently asked questions is, "Does a mortgage in principle mean you will be accepted?" While this query may appear simple on the surface, it unravels a complex web of factors that could impact the final mortgage approval.

In this insight, we'll explore the concept of a Mortgage in Principle (MIP), its reliability, the differences between an MIP and an Agreement in Principle (AIP), and the subsequent steps after obtaining an MIP.

Key Takeaways

• Mortgage in Principle (MIP) is an initial agreement from a lender based on basic information, giving you an idea of how much you can borrow. However, it's not a guaranteed acceptance as final approval depends on a thorough evaluation of your finances and the property.
• The MIP decision can change due to factors such as changes in your financial situation, problems with the property, closer examination of your finances during the full application, changes in your credit score, or changes in the lender's policy.
• The reliability of an MIP depends on the accuracy of the information provided by you. It is important to provide accurate and up-to-date details, and working with a mortgage adviser can help ensure the best reliability possible.
• A mortgage in principle typically remains valid for about 3 months, but significant changes in your circumstances can affect its reliability. If your circumstances change, you may need to apply for a new MIP, which may involve a soft credit check.

Does a Mortgage in Principle Guarantee a Mortgage?

A mortgage in principle doesn't guarantee acceptance. It's an initial agreement from a lender based on basic information. It gives you an idea of how much you can borrow, but the final approval depends on a thorough evaluation of your finances and the property. You could still be declined if your circumstances change or if there are issues with the property. 

The mortgage in principle decision could still change based on any of the following:

• Your financial situation changing (e.g. taking out more debt)
• Problems with the property you want to buy (e.g., structural issues, differences in value)
• The lender looking more closely at your finances during the full mortgage application
• Changes in your credit score (e.g., a decrease in your credit score) that may impact the lender's decision
• Changes in the lender's policy.

Essentially, a mortgage in principle (MIP) is a temporary agreement from a lender saying they might lend you a specific amount. It's based on the info you provide but isn't legally binding. An MIP is helpful because it gives you an idea of how much you can borrow, sets a realistic budget, and shows sellers you're serious. However, it's not a guaranteed approval. The lender does a basic financial check, but they don't fully assess the property. So, it's just an initial indication, not a definite approval.

What Can Change After Your Mortgage in Principle?

The mortgage in principle decision is not set in stone, it's even possible for the mortgage to decline just before completion. It's subject to change based on various factors. Here are some examples:

Your financial situation changing

Let's say you take on additional debt or your income decreases between the time you receive the mortgage in principle and the full mortgage application. The lender may reevaluate your financial capacity and adjust their decision accordingly. 

Problems with the property

If issues arise with the property you intend to purchase, such as significant structural problems or differences in the property's value compared to the initial assessment, the lender may reconsider their willingness to provide the mortgage.

Closer examination of your finances

During the full mortgage application, the lender conducts a more thorough evaluation of your financial situation. They may request additional documentation, perform detailed credit checks, and scrutinise your income, expenses, and savings. If any inconsistencies or concerns are discovered, it could affect their final decision.

Changes in your credit score

If there is a decrease in your credit score due to missed payments, increased debt, or other negative factors, the lender may view your creditworthiness differently. A lower credit score can impact their willingness to approve the mortgage or affect the terms offered.

Changes in the lender's policy

Lenders may update their policies, guidelines, or risk assessments during the time between the mortgage in principle and the full application. These changes can influence their decision-making process and potentially lead to different outcomes.

It's important to keep in mind that these are just examples, and there may be other factors that could influence the mortgage in principle decision or subsequent mortgage approval.

The Reliability of a Mortgage in Principle

The reliability of a mortgage in principle depends on the accuracy of the information provider by the applicant. Be sure to provide accurate information which is up to date and do not hide details. Use a mortgage adviser to apply for a mortgage in principle as this will help interpretation of incomes and provide the best reliability as possible. 

The lender's decision for an MIP is based on several key indicators:

• The borrower's income
• Broad estimates of monthly expenses
• Savings amount
• Proposed deposit amount
• Approximate cost of the desired property
• A soft credit check (in some cases)

However, the MIP isn't directly linked to any specific property. In-depth property checks and financial reviews come later during the actual mortgage application. Therefore, despite having an MIP, a borrower can face rejection during the mortgage application due to changed circumstances or property-related issues.

Validity of a Mortgage in Principle

A typical MIP remains valid for approximately 3 months, depending on the lender. However, the MIP's reliability can diminish if there are significant changes in the borrower's circumstances. In case of changed circumstances, the borrower can apply for a new MIP, which usually involves a soft credit check or no credit check at all.

Post-Mortgage in Principle: The Next Steps

After obtaining an MIP and having their offer accepted on a property, the borrower can progress to the subsequent steps towards final mortgage approval:

Preparation of Mortgage Application Paperwork

At this stage, the borrower should prepare all the necessary paperwork for the mortgage application. This includes proof of identity, address, employment details, details of outgoings, proof of deposit, and more.

Submission of Mortgage Application

The borrower submits the formal mortgage application, which the lender assesses based on the submitted paperwork, a full credit check, and a mortgage valuation survey of the property.

Mortgage Offer

The lender typically takes 2-6 weeks to deliver a mortgage decision. If the application is successful, the mortgage offer is valid for 6 months. If unsuccessful, the borrower should understand the reasons for rejection before applying again or seeking a mortgage from a different lender.

Contract Exchange

At this point, the buyer and the vendor's conveyancers exchange signed contracts, and the deposit is paid by the buyer. This process makes the offer legally binding.

Completion

Following the contract exchange, the completion usually occurs within one to two weeks. On the day of completion, the conveyancer facilitates the transfer of funds from the mortgage lender to the vendor, and the buyer collects the keys to the new home.

Concluding Thoughts

So, does a mortgage in principle mean you will be accepted? The answer is not necessarily. While an MIP provides an early indication of the borrowing capacity, it doesn't guarantee final mortgage approval. Therefore, potential borrowers should approach the process with a realistic understanding of the MIP's purpose and limitations. Remember to keep all information accurate and up-to-date, maintain a healthy credit score, and stay prepared for the subsequent steps towards securing a mortgage.