23 Dec What Is the Difference between an Agreement in Principle and a Decision in Principle

When it comes to the types of mortgage offers that lenders can provide, you may have heard the terms “agreement in principle” and “decision in principle”. Although they may sound similar, these are two distinct agreements that can affect your mortgage application process.

An agreement in principle (AIP) is a preliminary decision by a lender to provide a mortgage loan to a potential borrower. It is typically based on a soft credit check and a basic financial assessment of the borrower`s creditworthiness, income, and expenses. This agreement is not a formal offer and is not legally binding, but it can provide you with an estimate of how much you could borrow from a lender.

On the other hand, a decision in principle (DIP) is a more formal and binding agreement between a borrower and a lender. This agreement confirms the lenders` willingness to provide a mortgage loan to the borrower, subject to certain conditions such as a satisfactory property valuation and a full credit check. The decision in principle is valid for a limited time, usually about three months, and can be used to speed up the home-buying process.

A DIP is considered a firmer offer than an AIP since it confirms the lenders` approval to lend money based on more thorough research into the borrower`s financial situation. It is crucial to note that receiving a DIP does not guarantee that the borrower will be able to secure a loan if their circumstances change.

When deciding which type of agreement to obtain, it is essential to understand the differences between an AIP and a DIP. An AIP can be useful for those who are still exploring their options and want to know how much money they may be able to borrow. A DIP, on the other hand, can help those who are serious about buying a property to secure a mortgage loan more quickly.

In conclusion, while agreement in principle and decision in principle may sound similar, they are two different types of offers provided by lenders. An AIP is a preliminary decision based on a soft credit check and basic financial assessment, while a DIP is a more formal and binding agreement based on thorough research into the borrower`s financial situation. Remember that obtaining a DIP is more beneficial to speed up the home-buying process, but receiving it doesn`t guarantee that you will receive a mortgage if your circumstances change.