Hidden Costs of Buying Your First Home: What to Budget Beyond the Deposit
December 5, 2025
Hidden Costs of Buying Your First Home: What to Budget Beyond the Deposit Legal Fees:
Agreement in Principle vs. Mortgage Offer: What's the Difference?
What Is an Agreement in Principle
An Agreement in Principle, also known as a Decision in Principle (DIP) or mortgage in principle, is an initial indication from a lender that they would be willing to lend you a specific amount based on preliminary information about your financial circumstances.
Think of an AIP as a provisional green light. It’s the lender saying, “Based on what you’ve told us so far, we’re prepared to lend you this amount, subject to further checks.” It’s not a guarantee, but it demonstrates to estate agents and sellers that you’re a serious buyer with the financial backing to proceed.
What Information Do You Need for an AIP?
Obtaining an AIP is relatively straightforward and requires basic financial information:
- Personal details (name, address, date of birth)
- Employment status and income details
- Monthly outgoings and financial commitments
- Existing debts or credit agreements
- Deposit amount available
- Property value you’re looking to purchase
Most lenders can provide an AIP within minutes through an online application or over the phone. Some conduct a soft credit check that won’t affect your credit score, while others perform a hard search that leaves a footprint on your credit file. Always confirm which type of search the lender will use before applying.
How Long Does an AIP Last?
An Agreement in Principle typically remains valid for 60 to 90 days, though this varies between lenders. Some offer AIPs lasting up to six months, while others expire after just 30 days. If your AIP expires before you find a property or complete your purchase, you’ll need to reapply, which may involve another credit check.
The temporary nature of an AIP reflects its preliminary status. Your financial circumstances could change during this period, and the lender hasn’t yet verified the information you’ve provided through detailed documentation.
What Is a Mortgage Offer?
A mortgage offer, sometimes called a formal mortgage offer, is a legally binding commitment from a lender to provide you with a specific mortgage amount under defined terms and conditions. This document arrives only after the lender has conducted comprehensive affordability checks, verified your documentation, and completed a property valuation.
Unlike an AIP, a mortgage offer is the real deal. It’s the lender’s formal agreement to lend you the money to purchase your chosen property, confirming the loan amount, interest rate, repayment terms, and any special conditions attached to the mortgage.
What Documents Are Required for a Mortgage Offer?
Securing a formal mortgage offer involves extensive documentation. Lenders need to verify every aspect of your financial situation, including:
Proof of Identity:
- Passport or driving licence
- Utility bills or council tax statements for address verification
Proof of Income:
- Three to six months of payslips (employed applicants)
- Two to three years of accounts or SA302 tax calculations (self-employed applicants)
- P60 forms from recent tax years
- Bank statements showing salary deposits
Proof of Deposit:
- Bank or savings statements showing your deposit funds
- Documentation explaining the deposit source if it’s a gift or from property sale proceeds
- Evidence of any loan for house deposit if you’ve borrowed funds
If you’re considering a loan for mortgage deposit purposes, lenders will scrutinize this carefully. While it’s possible to get a loan for a house deposit from family members (often structured as a gifted deposit or loan), borrowing from commercial lenders for your deposit is generally viewed unfavorably, as it increases your debt-to-income ratio and overall financial risk.
Additional Financial Documents:
- Credit card and loan statements
- Evidence of other assets or savings
- Details of existing mortgages or rental agreements
- Proof of any benefits or additional income sources
The Property Valuation
Before issuing a mortgage offer, lenders commission a property valuation to ensure the property is worth what you’re paying for it. This isn’t the same as a homebuyer’s survey—it’s a basic assessment to protect the lender’s investment.
If the valuation comes in lower than the purchase price, the lender may reduce the loan amount, requiring you to increase your deposit or renegotiate the property price.
How Long Does a Mortgage Offer Last?
A formal mortgage offer typically remains valid for three to six months from the date of issue. This timeframe allows you to complete your property purchase while ensuring the lender’s assessment remains current.
If your mortgage offer expires before completion, you may need to apply for an extension or reapply entirely, potentially facing new interest rates and lending criteria.
Key Differences Between AIP and Mortgage Offer
Level of Commitment
An AIP is a conditional statement of intent, while a mortgage offer is a legally binding agreement. With an AIP, the lender reserves the right to decline your application after full underwriting. A mortgage offer, however, commits the lender to providing the funds, assuming you meet any conditions specified in the offer document.
Documentation Requirements
The AIP process requires minimal documentation—often just basic financial details provided verbally or through a simple form. In contrast, obtaining a mortgage offer demands comprehensive documentation proving every aspect of your financial circumstances, from income verification to deposit source confirmation.
Credit Checks
Many lenders perform soft credit checks for AIPs, leaving no mark on your credit file. Mortgage offer applications always involve hard credit searches, which are recorded and visible to other lenders. Multiple hard searches within a short period can negatively impact your credit score, though mortgage-related searches within a 14-day window are typically treated as a single inquiry.
Processing Time
An AIP can be issued within minutes or hours, making it ideal when you need to act quickly in a competitive market. A mortgage offer, however, takes considerably longer—typically two to six weeks—as lenders conduct thorough verification, commission valuations, and complete underwriting processes.
Validity Period
AIPs generally last 60 to 90 days, reflecting their preliminary nature. Mortgage offers provide more generous timeframes of three to six months, acknowledging the complexities and potential delays in completing property transactions.
How Estate Agents View AIPs vs. Mortgage Offers
Understanding how estate agents perceive these documents can significantly impact your property search success.
The Value of an AIP
Estate agents view buyers with AIPs as more credible than those without. When making an offer on a property, presenting an AIP demonstrates that you’ve taken preliminary steps toward securing financing and that a lender believes you can afford the purchase price.
In competitive markets, sellers may refuse to consider offers from buyers without an AIP, as it suggests they’re serious and less likely to waste time. However, estate agents recognize that an AIP isn’t a guarantee—they’ve seen deals fall through after AIP holders failed to secure formal mortgage offers.
The Weight of a Mortgage Offer
A formal mortgage offer carries significantly more weight with estate agents and sellers. It indicates you’ve passed the lender’s full underwriting process, your finances have been thoroughly verified, and funding is secured subject only to final conditions and completion formalities.
Buyers with mortgage offers in hand are viewed as the most reliable prospects, particularly in chain situations where multiple parties depend on smooth, timely transactions. If multiple buyers make similar offers, the one with a mortgage offer will often be favored over those with only AIPs.
Using Loans for Your House Deposit: What You Should Know
Many first-time buyers and property purchasers wonder whether they can get a loan for a house deposit to supplement their savings. The answer is complex and depends on the loan source and structure.
Acceptable Deposit Sources
Lenders generally accept deposits from:
- Personal savings built up over time
- Gifted deposits from family members (with a signed declaration that it’s a gift, not a loan)
- Proceeds from property sales
- Inheritance or windfall payments
- Government schemes like Lifetime ISAs or Help to Buy
The Challenge with Commercial Loans
Taking out a personal loan, credit card cash advance, or other commercial borrowing specifically for a mortgage deposit is problematic. Lenders assess your debt-to-income ratio and monthly commitments when determining affordability. Additional debt reduces your borrowing capacity and signals potential financial stress, making lenders hesitant to approve your mortgage application.
If you use a loan for house deposit purposes from a commercial source, you must declare this to your mortgage lender. Failing to disclose this debt constitutes mortgage fraud and can result in your application being declined or, worse, criminal prosecution.
Family Loans and Gifted Deposits
Borrowing from family members is more common and can work, but requires careful handling. If family members gift you the deposit outright, with no expectation of repayment, lenders generally accept this readily. They’ll require a signed declaration from the gift-giver confirming it’s not a loan and they have no stake in the property.
If it’s structured as a family loan with expected repayment, you must declare this to your lender, who will factor the monthly repayments into their affordability calculations. This may reduce the amount they’re willing to lend you.
The Journey from AIP to Mortgage Offer
Understanding the progression from AIP to mortgage offer helps you navigate the process strategically:
- Obtain an AIP before house hunting to establish your budget and demonstrate credibility to estate agents
- Find your property and have your offer accepted, presenting your AIP as evidence of your financial position
- Formally apply for your mortgage, providing all required documentation and details about your chosen property
- Complete the valuation, arranged by your lender to assess the property’s worth
- Undergo full underwriting, where the lender scrutinizes every aspect of your application
- Receive your mortgage offer, confirming the lender’s commitment to fund your purchase
- Satisfy any conditions specified in the mortgage offer, such as providing additional documentation or proof of repairs
- Proceed to completion, with your solicitor coordinating the final steps of your property purchase
Common Pitfalls to Avoid
Assuming Your AIP Guarantees Approval
Many buyers mistakenly believe an AIP guarantees mortgage approval. In reality, approximately 10-15% of AIP holders are declined at the full application stage when lenders discover discrepancies, undisclosed debts, or issues with the property or documentation.
Letting Your AIP or Mortgage Offer Expire
Keep close track of validity dates. If your AIP expires during your property search, renew it before making offers. If your mortgage offer expires before completion, address this immediately with your lender to avoid delays or rate changes.
Changing Your Financial Circumstances
Between AIP and mortgage offer, maintain financial stability. Avoid taking on new debt, changing jobs, or making large purchases that could affect your affordability assessment. Lenders can withdraw offers if your circumstances change significantly.
Not Declaring All Debts and Commitments
Some applicants omit mentioning small debts or occasional commitments, hoping to improve their application. This is mortgage fraud and will result in application rejection if discovered. Always declare every financial commitment, including any loan for house deposit purposes.
Making the Most of Both Documents
Both AIPs and mortgage offers serve important purposes in your home-buying journey:
- Use your AIP strategically during your property search to demonstrate seriousness and establish your budget
- Don’t rely solely on your AIP—recognize it’s a preliminary assessment that requires further verification
- Prepare documentation in advance so you can move quickly from AIP to formal application once your offer is accepted
- Maintain open communication with your mortgage broker or lender throughout the process
- Keep your finances stable between AIP and mortgage offer to avoid complications
Final Thoughts
The distinction between an Agreement in Principle and a formal Mortgage Offer is crucial for any property buyer to understand. An AIP gets your foot in the door, demonstrating to sellers and agents that you’re a credible buyer worth taking seriously. A mortgage offer, however, is the real commitment that actually funds your purchase.
By understanding these differences, preparing appropriate documentation, maintaining financial stability, and working with reputable mortgage advisers, you can navigate from initial AIP through to mortgage offer and successful property completion. Whether you’re a first-time buyer wondering can you get a loan for a house deposit or an experienced property investor, grasping these fundamentals will help ensure your home-buying journey proceeds as smoothly as possible.
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