Probably a stupid question, but how do 'in principle' mortgage offers work?

khgibb

My husband and I are first time buyers and we've sadly lost out on the house we liked recently to another couple in the bidding process. We of course don't know what their final offer was, but I read somewhere that a agreed mortgage in prinicple can make you more attractive to sellers.

I don't quite get how these work though? We've seen an independent financial advisor who, based on the information we gave, indicated we are likely to be able to borrow a lot more that we want. They also recommended at the time the best type of mortgage for us, but we haven't applied as we wanted to wait until we found a house.

What would the next step be for a MIP? And do you have to pay fees for them or complete the application within a specific timeframe? And would you then have to proceed with that mortgage, even if by the time you were ready to make the full application a better one was potentially available? Would it really make a difference if we were bidding against others (which in our area is very common).

lee111s

You basically approach a lender and say "I want to buy a house for x, would you lend me it" if you pass their initial check then they write you a letter saying they will lend you the money for the purchase (it is of course subject to a full application where they check outstanding debts, overdraft, affordability, dependants etc).

You're under no obligation to proceed with that mortgage and it doesn't cost you a penny. It's just to basically show EA's and vendors that your credit is OK and you shouldn't have any issues financing a purchase.