Agreement in Principle vs Mortgage in Principle: is there a difference?

Agreement in Principle and Mortgage in Principle are the same thing under different names. So are Decision in Principle, Lending Certificate and Mortgage Promise. Every one of them is an indication from a lender of what it would probably lend you, based on unverified information and a credit check, and every one remains subject to full underwriting and a valuation. What genuinely differs between them is not the name but the mechanics underneath: whether the lender ran a soft or hard search, and how much scrutiny the case received.

If someone tells you an MIP is stronger than an AIP, or that a DIP is a more advanced stage than an MIP, they are describing their own lender's branding rather than an industry hierarchy. There is no defined ladder of these documents. The Financial Conduct Authority does not prescribe the term, so lenders and brokers have simply settled on whatever wording their marketing department preferred.

You will see, in various combinations:

• Agreement in Principle, usually shortened to AIP
• Mortgage in Principle, or MIP
• Decision in Principle, or DIP
• Lending Certificate or Certificate of Eligibility
• Mortgage Promise, a term some lenders have used for years

Treat them as synonyms and judge each document on what it says, not what it is called.

The variety is mostly historical. Building societies and banks developed these documents independently in the 1990s and 2000s as a way of filtering enquiries and, frankly, as a marketing hook to get a customer through the door before a competitor did. Nobody standardised the naming, and once a lender had printed a term on thousands of certificates there was little reason to change.

Broker software then added its own vocabulary. Sourcing systems often use Decision in Principle for the automated result the lender's system returns, which is why brokers say DIP more often than consumers do.

The practical effect is that a first-time buyer can be told three different words for the same document by an estate agent, a bank and a broker in the same week, and reasonably conclude they need three different things. They do not.

Ignore the label. These are the four things that genuinely differ from one document to the next.

• Search type. Some lenders run a soft search, which other lenders cannot see. Others run a hard search, which leaves a visible footprint. This is the single biggest practical difference and it does not correlate with the name at all.
• Depth of assessment. Some are pure calculator output. Others are referred to an underwriter who looks at the case properly before issuing. A referred case is a stronger signal, though the certificate rarely says so.
• Whether the property is named. Some are generic and give a maximum borrowing figure. Others are tied to a specific address and purchase price, which makes them more persuasive to an agent.
• Expiry period. Commonly 30 to 90 days, set by the lender.

None of these is verified income. No document with any of these names has involved anyone reading a payslip. That happens at full application, and it is where the meaningful difference between an indication and a commitment lies.

The reason brokers reach for the phrase decision in principle is that it describes what the lender's system does. Your figures go into an automated decision engine which applies affordability rules, a stress test and a credit policy, then returns accept, refer or decline.

An accept is the certificate you take away. A refer means a human will look at it, which is common for self-employed applicants, contractors, people with recent adverse credit and anyone with unusual income. A decline at this stage tells you this lender is not the right one, and a broker will read the reason and move you elsewhere rather than trying again with the same lender.

Knowing whether your result was an automated accept or a referred accept is useful. A referred accept means an underwriter has already glanced at your case, which reduces the chance of a nasty surprise later.

Some estate agency groups produce their own paperwork, sometimes called a financial qualification or a buyer verification, after their in-house adviser has spoken to you. This is not a lender document and carries no weight with a lender. It is the agency confirming to its own seller that it has checked you.

You are never obliged to sit down with an estate agent's adviser to have your offer put forward. Agents must pass on all offers. If you are told your offer will only be forwarded once you have been qualified in-house, you can politely decline, supply your own lender certificate and, if pushed, point out that they still have to pass the offer on.

Agents are not comparing document types. They are scanning for four things: the lender name, a borrowing figure at or above what you have offered, a date that is recent, and your name spelled correctly. A certificate that shows all four does its job regardless of the heading at the top.

Where agents get twitchy is with certificates that show no expiry date, a borrowing figure below the offer, or a lender the agent has not heard of. Specialist lenders are perfectly legitimate, but expect an extra question or two.

When you get any of these documents, ask four things and write the answers down:

• Was this a soft search or a hard search?
• Is this a maximum borrowing figure, or is it tied to a specific property and price?
• What is the expiry date?
• Was it accepted automatically or referred to an underwriter?

With those four answers you know exactly what you are holding, and whether the person opposite you calls it an AIP or an MIP stops mattering.

Occasionally you will end up with two certificates, for example one from your bank and one arranged by a broker. Comparing the borrowing figures alone is misleading, because a higher figure often reflects a more generous income multiple or a different treatment of bonus income rather than a better deal.

A worked example. Lender A offers 232,000 pounds and Lender B offers 248,000 pounds on the same income of 58,000 pounds. Lender B counts your full annual bonus, Lender A counts half of it. If your bonus is genuinely reliable, Lender B is the better fit. If last year was exceptional, Lender B's figure is one you may not be able to sustain and may not survive underwriting.

The rate, the product fee, the early repayment charges and the lender's attitude to your particular circumstances all matter more than the headline maximum. That is a conversation to have before you apply rather than after.

If you would rather have someone translate the paperwork and tell you which lender genuinely fits your circumstances, the MortgageMatch directory lets you find FCA-authorised brokers and contact them directly.