Agreement in principle and decision in principle are two terms that are commonly used in the context of mortgage applications. However, despite their similar-sounding names, they represent different stages in the process of obtaining a mortgage.
Agreement in principle (AIP) is a preliminary decision made by a lender, indicating that they are willing to lend you a certain amount of money based on your circumstances. This is not a guarantee of getting the mortgage, but it gives you a good idea of what you can afford and how much you might be able to borrow. The lender will typically carry out a credit check and ask for basic information about your income and outgoings to determine how much you can borrow.
On the other hand, decision in principle (DIP) is a more concrete decision made by the lender, based on a more detailed assessment of your financial circumstances. The lender will carry out a more thorough credit check and may ask for additional documentation, such as bank statements and payslips. Once they have gathered this information, they will make a decision on whether to offer you a mortgage and, if so, how much you can borrow.
It is worth noting that both AIP and DIP are subject to certain conditions. For example, the lender may require a valuation of the property you are intending to buy, and they may change their decision if the valuation does not match their expectations. Similarly, if your financial circumstances change between the time you receive the AIP or DIP and the time you make a formal mortgage application, the lender may reassess their decision.
So, what is the difference between agreement in principle and decision in principle? The key difference is that AIP is a preliminary decision based on limited information, while DIP is a more concrete decision based on a more detailed assessment of your financial circumstances. In both cases, the lender will provide you with an indication of how much they are willing to lend, but it is important to remember that this is not a guarantee, and the lender may change their decision based on further information or changing circumstances.
In conclusion, if you are thinking of applying for a mortgage, it is a good idea to get an agreement in principle from a lender to give you an idea of what you can afford. However, you should be aware that this is only a preliminary decision, and a more detailed assessment will be required if you want to make a formal mortgage application. Ultimately, the decision in principle is the key moment in the mortgage application process, as this will give you a much better idea of your chances of getting the mortgage you need.
