Before applying for a mortgage and being in a position to make an offer on a property, you will need a Decision in Principle, also known as a DIP, or an Agreement in Principle, an AIP.
A Decision in Principle, or a DIP, is simply a guide of how much a lender would theoretically offer you based on a range of factors.
Before applying for a Decision in Principle, your broker will have reviewed your income and outgoings to check the affordability of the selected mortgage. A DIP is NOT a guarantee that the lender will accept an application so that you can get a mortgage.
It is a confirmation that your current financial circumstances suit the rules of the chosen lender.
If a lender accepts a DIP they are confirming that, subject to your broker providing evidence of the information provided they are highly likely to accept your mortgage application.
A good comparison is when you learn to drive. Think of the DIP as your provisional licence. The mortgage application is your driving test and the mortgage acceptance is your full driving licence.
Rather than then going on to buy a new car, this time, you are buying your new home!
You show the DIP acceptance to the Estate Agent when you are viewing properties. This puts you in a good position when it comes to putting in an offer for your dream home. Having a DIP acceptance at this point shows the seller that you are a viable candidate for this property as you have completed the initial assessment to show you can afford to buy it.
Once your offer has been accepted on a property, the next step is for your broker to complete a full mortgage application.
If your Broker has completed thorough research to ensure that your circumstances fit the lenders criteria, it is very likely that the DIP will be accepted.
The DIP could be declined for many reasons. If this happens, your broker will go through these with you to find out the cause for the decline and how this could be rectified.
It is important to ensure that any future DIP applications are on a ‘Soft Credit Search’ basis. This means that the lender performs a soft check of your credit file, but this search will not be visible to the public. This is important because a soft search is unlikely to affect your credit score if the DIP declines.
Once you have had your offer for the property accepted and you have a DIP accept, now is the time to apply for your mortgage and choose your solicitor. You Mortgage broker can often provide a list of solicitors in your local area or you can select one from online recommendations.