Thinking about Moving House? Start with a Decision in Principle
The housing market may be moving oﬀ the boil, but while prices are starting to level, we are not in a buyers’ market.
Many estate agents want to see that your finances are in order before they will let you view a home. This means that if you are serious about buying a property, you often need a Decision in Principle in place before you start scrolling through Rightmove.
How does a Decision in Principle oﬀer work?
A Decision in Principle is a document which shows that your lender is happy to provide you with a mortgage in principle. It involves a lot of the work that goes into a final mortgage application. To get a Decision in Principle from a lender, you have to submit three months of bank statements, details of savings and documents to verify your identity. You also have to provide information about your outgoing expenses, such as school fees, loan repayments or car finance.
A mortgage underwriter will then review your entire financial situation and provide a provisional oﬀer of a mortgage loan. A Decision in Principle can be valid for three to six months, depending on the lender.
Preparing for your application
Speaking to an independent mortgage adviser is the first step. You may feel that qualifying for a mortgage shouldn’t be too difficult, especially if you already have a mortgage on your current home, but circumstances can change. After a careful review of your credit and income, a lender may think otherwise. A good mortgage adviser will help you to prepare your application and show your finances in the best light possible.
To ease your path toward pre-approval, it is good idea to clean up your credit by paying all of your household bills, loans and credit cards on time before you apply. This raises your credit score, increases your favourability to banks, and helps you qualify for the best possible interest rates. You should avoid making any unusually high outgoings such as large one-off payments for new goods: making substantial purchases (that you could defer until later) may skew the view of your finances unintentionally.
Paying down small levels of debt can also help, as lenders factor in your debt-to-income ratio when deciding whether to approve your Decision in Principle application. Clearing balances on credit and store cards can be a good place to start.
Choosing a Fixed or Variable Rate Mortgage?
Grocery prices may be rising because of inflation, but mortgage rates are still extremely low at the moment.
This means you may wish to consider a fixed rate mortgage which will lock you into a low interest rate for as long as possible. A fixed rate mortgage is not suitable for everyone and usually carries some form of upfront fee, but for those people who like the financial security of regular repayments, they can be a good choice. Fixed rate mortgages can vary in length from one to ten or more years.
Variable rate mortgages often have lower interest rates when you compare them to current fixed rate products. This means when you compare monthly repayments, they are often cheaper. The risk of choosing a variable rate mortgage is that your repayments can go up or down at any time. If you are considering a variable rate mortgage, then you should carefully think about whether you could afford an increase to your monthly mortgage repayments if they were to go up.
If you already have a mortgage, don’t assume that staying with your current lender is going to be the best idea. A slight difference in the rate of interest charged can make a big difference to the amount of money you repay over the life of the loan. It is important that you shop around to secure the most appropriate rate and deal for your circumstances.
Find out more
To get help finding the best possible mortgage and arranging pre-approval for your loan, contact one of our Mortgage Advisers at Furnley House who will be pleased to help. Call 0116 269 6311 or email email@example.com
All information correct at the time of writing.
Your home may be repossessed if you do not keep up repayments on your mortgage.