Does a mortgage in principle include your deposit?

No. The figure on a mortgage in principle is the amount the lender might lend you. Your deposit sits on top of it, and adding the two together gives your maximum purchase price. The lender will ask how much deposit you have and where it is coming from, because that affects the loan to value and therefore the rate, but it does not check or verify the money at this stage. Evidence is requested at full application.

The number is a borrowing figure. It is the output of an affordability calculation based on your declared income, your declared credit commitments, your household composition and a stress test.

Your deposit is a separate input. It influences the assessment in two ways. It determines the loan to value band, which drives which products you can access, and it caps how much you actually need to borrow. But it never forms part of the number on the certificate.

This trips people up constantly. Someone with a certificate for 240,000 pounds and 45,000 pounds saved will sometimes assume they are looking at properties up to 240,000 pounds. They are not. They can look up to 285,000 pounds, minus the money they need to keep back for costs.

Do the arithmetic properly before you start viewing, because the ceiling is lower than deposit plus borrowing suggests.

• Start with your total savings
• Subtract your stamp duty or equivalent land tax liability
• Subtract legal fees, searches, survey and lender fees
• Subtract removals, and any immediate work the property needs
• Subtract a contingency you can live with, ideally at least a couple of thousand pounds
• What remains is your usable deposit
• Add the borrowing figure from your certificate

A worked example. You have 52,000 pounds saved and a certificate for 228,000 pounds. You are buying in England, so stamp duty land tax applies, and rates and thresholds differ depending on whether you are a first-time buyer, so check the current position with HMRC or your solicitor before you rely on a number. Say you budget 4,500 pounds for tax, 2,200 pounds for legal fees and searches, 700 pounds for a homebuyer level survey, 900 pounds for removals and 3,000 pounds contingency. That is 11,300 pounds of costs, leaving 40,700 pounds as usable deposit. Your realistic ceiling is 268,700 pounds, not 280,000 pounds.

If you are buying in Scotland the tax is Land and Buildings Transaction Tax, and in Wales it is Land Transaction Tax. They are separate regimes with their own thresholds and their own rules, so never apply an English calculation to a Scottish or Welsh purchase.

At the mortgage in principle stage you simply declare an amount and a source. At full application, evidence is required, and lenders are thorough about it because they have anti-money-laundering obligations and because a deposit that evaporates is a loan that should never have been made.

Expect to be asked for:

• Bank or savings statements covering typically three to six months, showing the money accumulating rather than appearing overnight
• An explanation for any large single credit, with supporting paperwork
• Evidence of a Lifetime ISA or Help to Buy ISA balance and provider, where relevant
• Sale documentation if the deposit is coming from selling another property
• A gift letter and supporting documents if any of it is a gift

Your conveyancer will run a parallel check, because solicitors have their own client due diligence duties. You will therefore be asked similar questions twice, by two organisations who do not share files. Keep a single folder of statements and letters and you can answer both quickly.

Gifts from family are extremely common and cause no problem when they are documented properly. The two conditions almost every lender applies are that the money is a genuine gift with no expectation of repayment, and that the giver retains no interest in the property.

A gift letter usually needs to state the giver's name and relationship to you, the amount, confirmation that it is a gift rather than a loan, confirmation that the giver will hold no interest in the property, and a signature and date. Lenders differ on who they will accept a gift from. Parents and grandparents are almost universally fine. Siblings and more distant relatives vary. Gifts from friends or employers are accepted by fewer lenders, and some will not accept them at all.

The giver also has to prove where their money came from. That surprises families, and it is worth warning them early so nobody feels accused when the request arrives.

There are inheritance tax considerations for the giver depending on the amount and their circumstances. That is a question for a tax adviser rather than your broker.

Source of funds means where the money is sitting now. Source of wealth means how you came to have it in the first place. Lenders and solicitors ask about both.

Ordinary savings from salary are easy: statements showing the balance building over time are usually enough. The categories that generate more questions are large cash deposits, cryptocurrency proceeds, overseas transfers, gambling winnings, compensation payments and money from the sale of a business or valuable item.

None of these is prohibited. They just require a paper trail. Crypto, for example, typically needs exchange statements showing the purchase, the sale and the transfer into a UK bank account, and some lenders will decline it regardless. If any part of your deposit falls into an unusual category, tell your broker before an application goes anywhere, because it can determine which lender you approach.

Avoid moving money between accounts shortly before applying. Every hop creates another statement an underwriter has to reconcile, and it slows things down for no benefit.

Beyond the deposit and tax, budget for a valuation fee where the lender charges one, a product fee that you can sometimes add to the loan but will then pay interest on, the conveyancer's fees plus disbursements such as local authority searches and Land Registry charges, and buildings insurance which must be in place from exchange.

Leasehold purchases add more. Expect a management pack fee, apportioned service charge and ground rent, and sometimes notice fees payable to the freeholder or managing agent on completion.

If you would like help working out a realistic budget rather than a theoretical maximum, the MortgageMatch directory lists FCA-authorised brokers who can run the numbers with you.