Mortgage decision in principle - stupid question!

[ShirleyPhallus]

Have got an utter case of brain fog, but we are currently trying to buy a house.

In the DIP we have, it says we can borrow up to a certain amount. It makes no reference to a deposit so does that include or exclude the deposit amount?!

FWIW, it’s nearly exactly 4 x our combined salaries

I thought when I bought my first flat the DIP said something like “should be able to borrow £200k with a £30k deposit giving a total purchase price of £230k” but not sure if this is further brain fog

The information on here just says:

“Loan information: based on the info supplied, a mortgage of £X is available to Mr and Mrs Phallus”

So does this include our deposit or no?!

It’s the amount the bank are willing to lend, so without the deposit.

No it doesn’t, it means that they will lend you eg £200k to enable you to buy a property of around £220k assuming an approx deposit of £22k / 10%. It’s also based on the value of the house. If they value that house at £180k but you offer £200k they will only loan you £162k ie their value less 10%.
Of course they may lend you 95% LTV but expect to pay a higher interest rate.

Yes it's without the deposit.

You will have had to tell them who much deposit you have to determine the loan to value rate (LTV), so for e.g. you said you had £25k, the house is worth £100k, the decision in principle will be for a £75k mortgage at a 75% LTV rate. If you then found a house worth only £75k you couldn't then just borrow the whole £75k and keep the deposit for yourselves as that would make it a 100% mortgage which no banks will allow these days.

So it's worth double checking what the maximum LTV rate on the mortgage you've been approved for is and how much deposit you based the decision on (if it doesn't say) as if you are thinking of buying a place which needs some work doing you need to know how much deposit you 'have' to put down...

You’re all super, thanks so much!

It’s also based on the value of the house. If they value that house at £180k but you offer £200k they will only loan you £162k ie their value less 10%.

This isn’t the DIP though is it? You get the DIP then make the actual mortgage application and that’s when the lender values the house and tells you how much they think it’s worth and therefore how much they’ll lend you?

As you say, valuation comes with the 'full' mortgage offer - they value the house to ensure it's worth what you think it's worth and also validate what you've said about your income and outgoings by checking your bank statements and payslips etc.

You can get a DIP without even having a particular house in mind, it's just an indication of your borrowing capacity based on your income, outgoings and LTV rate...

It's the amount BASED ON YOUR INCOME they will lend you.

What your deposit is - £10k or £500k - is irrelevant and makes no difference to the amount they'll lend you, but it will affect what deal you can get. Bigger deposit = better (lower) mortgage rate.

@maxkelly thank you, exactly what I was after

It’s been a while since I did this last and all coming back to me now!