Making an Offer on a House: Do You Need a Decision in Principle First?
The process of buying a home can feel complex, especially when it comes to understanding financial preparations like a Decision in Principle (DIP), sometimes known as an Agreement in Principle (AIP) or Mortgage in Principle.
A common question we get is, “Do I need a DIP to make an offer?” While it’s not a strict legal requirement, having a DIP can be a significant advantage when navigating the competitive property market.
What is a Decision in Principle?
A Decision in Principle is an indication from a lender that they would, in principle, be willing to lend you a specified amount of money based on your financial details.
It’s not a guarantee of a mortgage but rather an early assurance that you’re eligible for a loan of that amount, subject to a full application and more in-depth checks.
When applying for a DIP, lenders usually carry out a preliminary assessment of your income, outgoings, and a credit check to gauge your borrowing potential. The process is relatively quick, often taking just minutes, and gives you a snapshot of what you may be able to borrow. I foyu would like to review your credit report in advance you can obtain a free report from Check My File.
It’s essential to however understand that a Decision in Principle doesn’t commit you or the lender. Circumstances may change, and the final mortgage offer could differ.
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Is a Decision in Principle Required to Make an Offer on a Property?
Technically, no, you don’t need a Decision in Principle to make an offer on a property.
However, having one can strengthen your position as a serious buyer. Many estate agents prefer or even require buyers to present a DIP before forwarding offers to the seller. Here’s why:
Proof of Intent
Sellers want assurance that potential buyers have the financial means to proceed with a purchase. A DIP offers that confidence and can help you appear more serious than buyers without them.
Speed and Efficiency
If two buyers are interested in the same property, the one with a DIP is often viewed as more reliable, potentially giving them an edge in negotiations.
Preventing Delays
Without a DIP, there’s a risk that your mortgage application might fall through, leading to delays or a failed transaction.
While you aren’t legally obligated to have a Decision in Principle, it’s highly recommended, especially in competitive markets.
Estate agents are working for the seller as they are paying their bill. Their job is to mind the most suitable buyers for a property, and if buyers potentially requiring a large mortgage have not even looked into their capacity, it may not make them shine amongst other interested buyers.
Benefits of Getting a Decision in Principle
Securing a DIP before house hunting or making an offer comes with several advantages:
Greater Credibility as a Buyer
With a DIP, you demonstrate to sellers and estate agents that you are financially prepared to proceed. This can be particularly beneficial if you’re competing with other potential buyers.
Better Understanding of Your Budget
A Decision in Principle helps you understand how much you can borrow, making your property search more targeted and efficient. You won’t waste time viewing homes outside your price range.
Speeds Up the Mortgage Process
When your offer is accepted, having a DIP can fast-track the mortgage application process, allowing you to move forward without unnecessary delays. If you DIP is later declined as you have not started the process at all, your broker will need to spend time investigating this and looking for another lender.
Peace of Mind
Knowing that a lender has given initial approval can relieve some of the stress associated with buying a home. While it’s not a full guarantee, it provides a sense of reassurance and is a good starting point.
How to Get a Decision in Principle
Obtaining a DIP is straightforward, and you can do so directly with a lender or through a mortgage broker like Kerr & Watson. Here’s what you typically need to provide:
- Personal Details: Name, address history, and date of birth.
- Financial Information: Your income, monthly outgoings, and details of any existing debts.
- Deposit Amount: How much you have available to put down.
- Credit Check: Lenders usually conduct a soft credit check, which won’t impact your credit score. However, some lenders may do a hard check, so be sure to ask.
We simplify the process by matching you with lenders most likely to approve your application, even if you have unique financial circumstances.
Does a Decision in Principle Affect Your Credit Score?
Whether or not a DIP affects your credit score depends on how the lender conducts the credit check:
- Soft Credit Check: This type of search doesn’t leave a mark on your credit file and won’t impact your score. Most lenders use this method for a DIP.
- Hard Credit Check: This type leaves a record on your credit file and may lower your score temporarily. It may be best to limit numerous hard searches where possible but they are sometimes needed if you want to show agents you have passed a DIP.
Conclusion
While a Decision in Principle isn’t a legal requirement for making an offer on a property, it can be a helpful part of getting your offer accepted, also reducing pressure after this point.
It provides credibility, helps streamline the mortgage process, and gives you a clearer understanding of your budget.
Given its benefits, it’s often a smart move to have one in place when embarking on your home-buying journey.
At Kerr & Watson, we specialise in making mortgage advice simple and stress-free.
Whether you’re a first-time buyer or have complex financial needs, our team is here to support you.
Contact us today to discuss your options.
