Once you’ve made up your mind that you need a mortgage and have set eyes on your perfect home or investment opportunity, then the DIP (Decision In Principle) comes into play. DIP is also referred to as lending certificate or AIP (Agreement In Principle) or mortgage promise depending on the lender.
It’s generally a confirmation by the lender that they’re prepared to provide you with the needed funds. DIP is a sure stepping stone towards accessing that mortgage you’ve set eyes upon. In essence, it offers you a glimpse of the expected amount the lender is ready to offer.
Accessing the DIP
Just like the full mortgage itself, the decision in principle can be applied for directly from the lender or via a mortgage broker. It shows the potential of accessing funding and looks at different scenarios.
DIP takes a number of things into account, including the amount the borrower is able to afford based on different factors such as outgoings and income. Credit score also comes into the picture and credit reference agencies will be contacted to find your creditworthiness. Of note is that lots of lenders carry out light credit checks that might not have an effect on a borrower’s credit score. However, too many of these ‘soft searches’ can impact the lender’s willingness to lend and the borrower’s credit score.
DIP is also based on the lending criteria and systems of the lender. Also required are a number of things such as income proof and address history of about three years. Once the mortgage promise is done, you should know from the lender whether you’ll get the funding, including an indication of the total amount you could get.
Do request a certificate once the DIP process is confirmed to present to the seller or estate agents as a validation of having received a loan confirmation. The certificate is critical in situations where you might need to move fast to show the seller you’re seriously considering purchasing the property.
What a DIP really is
It’s very important to know that the decision in principle isn’t in any way an official mortgage offer. It might be very important in different instances, especially when you need to move quickly to assure a property owner of your interest. However, it’s not an automatic confirmation that the amount of loan you seek is what you end up with.
Circumstances could change at any given moment, or your credit history check might flag up something negative. The property type you intend to purchase might also change while the deposit amount could also change while the lender might decide they don’t really have a proper mortgage that suits you after meeting you in an interview.
Always be prepared in your mind that even after a decision in principle has been given you still might not get the funding you need or the full amount due to various reasons. DIP is just a promise that could change or break.
Why the DIP could have been declined
Even after receiving a mortgage promise you might end up facing the reality of a declined decision in principle. Different reasons could lead to a decline, such as poor credit rating informed by diverse realities like missed payments, CCJs (County Court Judgements) or glaring defaults. Your details might not be on electoral registers and lenders might not be able to confirm proof of residence.
Lots of existing debt might also appear too high giving the lender cold feet thus declining your funding request. Payday and short-term loans history might also lead to a decline as the lender might be convinced you won’t be able to handle the costly demands of a mortgage. DIP can also be declined by clerical errors like entering wrong personal and professional information.
Also, remember a DIP is not legally binding and doesn’t guarantee anyone that the mortgage offered will be provided. Decisions could change along the application process.
If your decision in principle is declined, it doesn’t mean you’re not fit for a mortgage. It simply means the specific lender you approached isn’t ready to offer one. Some lenders refuse to lend to specific demographics, class of people or fund a certain kind of property purchase. Approach a mortgage broker or expert independently to help you make sense of the mortgage terrain and find the perfect lender for you.
DIP can be applied via phone, website or appearing in person in an institution. In just a few minutes to an hour, the mortgage promise could be completed. While it varies from one lender to another, the decision in principle is usually valid for 2-3 months.
In case your DIP has expired just approach the lending institution for an agreement renewal. The same verification process you underwent might be repeated.