08 Mar 2017
Will your first home be smaller than you hoped and located on the fringes of the area you really want to live in? Or will it be the house of your dreams with plenty of light, space for the kids and a nice garden to boot?
The difference could be decided by how much you can borrow.
But if you are going to maximise your mortgage you will need to fix any potential glitches in your application.
Here are five things to consider before applying for a mortgage in Ireland.
How much are you earning?
How much you earn is often the first question that any financial institution will ask when you're applying for a mortgage. They want to know that you are earning enough to get the house you really want.
To maximise your certified income now may be the time to ask for that raise.
Or if you are working as a freelancer or on an ad hoc basis now is the time to ask for a contract. It also helps if you can get any bonuses and overtime earnings guaranteed in writing from your employer.
If you have your own business, make sure you have three years of good earnings certified by your accountant. It may also help to show any copies of long term contracts that will guarantee future earnings for you or your company.
How much have you saved?
Make sure your savings record is strong enough to get the loan that you need by saving as much as you can every month by direct debit. You can do this by opening a regular savings account and putting as much into it as you can afford.
If you're lucky enough to be gifted a part of your deposit, you must show where it came from. So ask your parents – or whoever gifted you the money - to sign a letter confirming that it doesn't have to be paid back.
How much can you afford to repay?
Mortgage lenders must make absolutely sure that the customer can repay the debt for the term offered. They also have to stress test for rate increases.
That's a big ask. So lenders have to be quite stringent in implementing this.
They need to see that you pay rent and save regularly – so set up standing orders so all the evidence will be in your bank statements.
It's surprising how many renters still pay their landlord (or their parents) in cash and miss out on proving the fact to their lender who just wants to see it on their bank statements.
Lenders also want to see that the total amount you save each month – plus rent – at the very least matches the stress-tested mortgage repayments (i.e. what you will actually repay on your mortgage plus 2%).
You should also have money to pay for "extras" such as legal fees (€1k-€2.5k), stamp duty (1% of the purchase price) and other closing costs (1% of the overall price).
So if you are a first time buyer and the house you want to purchase is €180,000 you'll need to have at least €18,000 for a deposit. This is based on a 90% mortgage for first time buyers on homes up to a value of
€220,000 plus an estimated €6,000 to cover additional expenses giving a total of €24,000.
Good financial management
To make sure you can afford your mortgage repayments over the term offered, lenders are looking for evidence of good financial management. Six months' statements for all accounts are usually required (and possibly up to a year's statements on loan accounts).
Make it easier for them by making sure you have a narrative on your bank statements for every transaction – i.e. if a deduction is rent make sure it says so.
Make sure you stay within your overdraft and do not miss any payments during the period under scrutiny. You should also make sure you pay your credit card off in full each month so you're not carrying any residual debt.
It's a good idea to file your statements away along with your P60 and wages slips so you have easy access to them when you need. You should also make sure your up to date address is on your statements.
How much do you owe?
Try to pay off any overhanging debts, starting with those on which interest is highest. Lenders also want to make sure you have not missed any loan repayments.
If you missed loan repayments previously, you can check how this affected your credit rating with the Irish Credit Bureau, which is where all financial institutions share borrowers' loan repayment records.
Fill out the form, pay a fee of €6 and you will find out where you stand.
Thinking of applying for a mortgage?
And if you'd like to talk through your mortgage options book a 30 Minute Mortgage Meeting today.
The content of this blog is expressed in broad terms and is limited to general information purposes only. Readers should always seek professional advice to address issues arising in specific contexts and not seek to rely on the information in this blog which does not constitute any form of advice or recommendation by EBS d.a.c.
EBS d.a.c. neither accepts nor assumes any responsibility in relation to the contents of this blog and excludes all warranties, undertakings and representations (either express or implied) to the fullest extent permitted under applicable law.
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