What is a mortgage-in-principle?

If buying a house is a journey (normally with an amazing destination!), then getting a ‘mortgage-in principle’ is a significant milestone along the way.

Put simply, a mortgage-in-principle is a statement from a lender saying they’re willing to lend you a certain amount of money. You can then show it to sellers and estate agents as a way of reassuring them that you’re serious about purchasing a property – something that may give you an advantage over other prospective buyers. In fact, it’s a requirement in Scotland to have a mortgage-in-principle before you can make an offer on a home.

Getting a mortgage-in-principle is straightforward. You can do it online, over the phone or through an independent mortgage broker like Charles Cameron & Associates. The lender will want some details off you: including your address, income/expenditures, and any credit cards or loans you might have. However, unlike a complete mortgage application, you won’t need to supply payslip or bank statements.

While a mortgage-in-principle is a good thing, there are caveats:

1. The ‘in principle’ part means that the lender has the right to withdraw the offer
2. The offer is finite and will expire after a set time: usually between 30 and 90 days
3. The lender will run a credit check on you

If they do a ‘hard’ credit check, this will show on your record, which may affect your credit rating in the future. However, a ‘soft’ credit check – also known as a ‘quotation search’ – won’t leave any trace. When you request a mortgage-in-principle, make sure you know whether they will carry out a hard or soft credit check.

Once you’ve got a mortgage-in-principle, you can then make a formal application: although remember that the longer the time between the mortgage-in-principle and your actual mortgage application, the more likely that circumstances – such as interest rates or your income – may have changed. That’s why a mortgage-in-principle isn’t legally binding for either party: the lender is free to reject your application, and you’re free to talk to other providers.

If, however, you want to go through the full application with the lender, you’ll have already passed some of the preliminary stages. You can then make an offer on a home with a more realistic idea of what you will be able to borrow. After that, the lender will conduct its underwriting checks and carry out a valuation on your prospective property. Hopefully, something that will end with you buying the home you’ve always wanted.

Our expert mortgage advisers at Charles Cameron & Associates are here to help make the whole home-buying process as straightforward as possible. We can help arrange a mortgage-in-principle and the full application so that can make that first big step onto the housing ladder.