Mortgage offers explained

What is a mortgage offer?

A mortgage offer is an official confirmation from a lender that they will lend you the money needed to purchase a home.

This formal contract normally contains your personal details alongside conditions of mortgage deal and information about the property you're purchasing.

How do you get a mortgage offer?

A mortgage offer will only be provided once you have completed a mortgage application and met the lender's affordability criteria, which typically includes income and credit checks. 

Mortgage lenders also carry out a valuation of the property you plan to buy, to be sure that the mortgage loan is equal to the value of the property and that the price you’re paying is in line with the market average for its type.

How long does a mortgage offer last?

Most mortgage offers last three to six months, but this can vary from lender to lender. Not all lenders count offer validity from the same point, with some using the date you put in an offer on the property and others using the date of your mortgage application.

Some lenders even specify an actual date by which you must have completed, so it’s important to be clear on the validity rules before signing the offer. If you're buying a new build property 'off-plan', you may need to ask them to extend the offer period in line with the property's construction completion date.

Can I extend my mortgage offer?

It’s possible to ask the mortgage lender for an extension of your existing offer, although this won’t always be possible, especially if the offer has already expired. 

If you think that you might need an offer extension, it’s best to notify the lender as soon as possible, as they often require a few weeks’ notice to extend your mortgage offer. 

A typical extension, where possible, would be for around an additional month, although some lenders may be more flexible, especially if the delays are outside of your control.

What should I do if my mortgage offer expires?

In the event that your mortgage lender refuses you an extension, you’ll need to reapply for a mortgage and go through the same process and checks all over again. You may also have to pay for a new valuation and other fees.

This is why a mortgage broker can be helpful to have on board, as they will be able to keep you updated on the progress of your purchase at every stage, and give you a heads up, should there be any delays that require you to apply for an offer extension. 

Can a mortgage offer be withdrawn?

A mortgage offer may be withdrawn after you’ve signed it. This is rare, but is possible if:

• Your finances change significantly - for example, if you lose your job or become too ill to work

• The property drops in value due to changes in the market

What is a mortgage in principle?

A MIP, often referred to as an agreement in principle (AIP) or decision in principle (DIP), is a theoretical mortgage offer. It outlines how much you can borrow from a lender, provided you meet their criteria when you go through the full application process.

As this is not an actual mortgage offer, it should be only used as a guide to help you budget and search for suitable properties. But it’s important to understand that the size of the loan, the interest rate, and the term features are all subject to change.  

A MIP is also very useful when it comes to making an offer on your chosen property. It shows the seller that you have serious intent to buy and can help move the home buying process along more quickly. 

Estate agents are increasingly reluctant to show properties to prospective buyers that don’t have a MIP in place, so this can be a key tool in your hunt for the right home. 

How to get a mortgage in principle

To get a MIP, you should:

• Speak to a mortgage broker - a whole-of-market broker can compare mortgages from across different lenders to find the right option for you and your circumstances

• Apply for a MIP with your selected lender - your broker can normally help with this (some offer the ability to apply online) and you'll need to provide some details, including how much you want to borrow, your income and existing financial commitments

• Get your MIP document - this will state that you have a MIP with the lender for the specified sum of money but you are not tied into this lender or deal, and you can change your mind before you go through the full application process

It’s a good idea to ask whether the lender will search your credit file, as multiple credit searches in a short duration won’t help your credit score. Not all lenders carry out a credit check at this stage, and a broker should be able to direct you to those lenders who don’t. 

How long does a mortgage in principle last?

A MIP typically lasts between 60 and 90 days, which usually allows enough time to find and have an offer accepted on a property. 

If you don’t manage to find a home or get an offer accepted in that period, you can re-apply for a MIP if your current one expires.

Does a mortgage in principle guarantee that I’ll be offered a mortgage?

No, a MIP doesn't guarantee you will be approved for a mortgage as you have only provided basic information in order to get it. 

The actual mortgage application process will include full assessment of your proof of income and outgoings, a hard credit search, and a detailed look at your bank statements to understand your complete financial circumstances and ability to cover the monthly repayments.

Whats the difference between a mortgage offer and a mortgage in principle?

The key difference between a mortgage offer and a MIP, is that the official mortgage offer is usually a guarantee that the lender will provide the funds needed to purchase your property.

But a MIP is intended as a guide to give you an idea of what you are likely to be able to borrow. This helps guide your property search. Neither you or the lender is tied to this, however, so you can easily choose another deal when you come to apply. Equally the lender may not be able to offer you that deal when you come to apply.