22 Sep 2017
Posted in: First Time Buyer
The two of the biggest signifiers of adulthood begin with the letter ‘m’: ‘marriage’ and ‘mortgage’. These things don’t necessarily go-together, though they often do, with many couples getting a mortgage and later getting married – or vice-versa.
The mortgage application is the true bond of any relationship. You save your deposit together. You go through the application process.
You eventually get to live together in a home of your own – and that’s the dream for all of us really. Even though we’ve all heard the nightmare tales of IKEA-related stress; there’s a lot less of it if you are bringing that Billy bookcase back to your own place rather than a rented house or apartment.
Of course, one of the things that is most important to anyone thinking about owning their own home is how your income matters.
There are questions that everyone has. What happens if one of you makes more than the other? Or what happens if one of you is unemployed? And should you make a joint application or not?
To understand the impact your incomes will have on your application, we’ve brought in one of our very own Mortgage Masters – Raymond Ryan, manager of EBS Mullingar who has been helping couples get their first home for years.
The first thing that can affect your application when it comes to affordability and income, is the Central Bank rules. There are two types of limits on a mortgage.
The first, LTV or loan-to-value, takes the ratio of the loan to the price of the house. LTV ties directly into deposit and says that first-time buyers will have a limit of 90 percent loan-to-value on a house.
The second type is the LTI or loan-to-income, this is the ratio of the loan to the income of the borrowers. The LTV has a general limit of 3.5 times the gross annual income of the applicants.
But what if one of you is earning more? How will that affect the mortgage application? The simple answer to that, is if you apply together, then both your incomes will be added together. (Married couples have to make a joint application).
If your partner has earned less than you for a reason (i.e., sickness or they took a career break) – and you can prove that they are going back to work or have a job waiting for them – then this income can be considered too. However, it all depends on the contract so the best bet is to talk to one of our mortgage advisors.
If you are applying on your own – then your partner’s income doesn’t come into it at all.
Mortgage Master Raymond says that although these limits usually apply, there are exceptions, so the first step he recommends is to meet with a mortgage advisor. “The only way to tell is to do an income assessment with an advisor using actual income levels,” he says.
“When there are two applicants, joint incomes are added together to form total income. We can lend up to 3.5 times joint incomes. We need joint incomes to reach a certain threshold, if they exceed this threshold by a certain amount then we could lend up to 4.5 times joint incomes.”
Taking both limits into account, let’s look at an example. In this scenario, a couple are looking to get a mortgage. One of them earns €50,000 and the other is on €20,000. Their upper limit is €70,000 times 3.5. In a joint application, they will be able to buy a house with a value of up to €245,000. With an LTV of 90 percent, the couple will have to have a deposit of €24,500.
However, the mortgage lending application isn’t quite so simple as adding up your salaries and multiplying it by 3.5. Your lender will take many more factors into account too – but this is the basics of how it all works. Phew!
Some of the key criteria your lender will look at includes:
In the best-case scenario, both you and your partner could pool your resources and apply for a joint application. Let’s take our couple’s example above. Should they apply for a single mortgage, or should they make a joint application?
Raymond Ryan says that a joint application makes more sense.
Quite apart from the earnings – which will be assessed as a joint income of €70,000 – there are benefits that can come in terms of repayment capacity (your ability to prove that you could cover the costs of the mortgage). He gives a real-life example of when this proved useful for a couple.
“We combine the rent and savings of each party to come up with repayment capacity. One recent application I submitted was where one applicant was saving €1,800 per month and the other was saving €400 a month. We combined these to get €2,200 per month.”
And as much as the LTI matters, it’s not as simple as multiplying figures and considering factors. It’s also about your repayment capacity –could you and your partner afford to make your repayments (plus an additional percentage, should the rates increase)?
The ‘joint assessment’ is the compulsory assessment option for married couples (even if you only have one income). Raymond Ryan explains the reasoning behind this.
“If one party is not employed or working in the home for example, they are considered to be financially dependent on the other applicant – even if they are in receipt of social welfare as social welfare payments will not be taken into account for loan assessment.
This may reduce the applicants’ ability to borrow. We can’t advise [them] to submit a single application if there are dependent partners and children involved. Once we are aware of the situation we will advise to submit taking all dependents into account.”
But there are benefits, in the form of tax savings (a little plus for those who have been weighing up the pros of getting married before buying their first home).
Figuring out the best way for you can be pretty tricky. But the easiest way to start is to consult one of our mortgage experts. They’ve moved countless couples into their first homes and know exactly where to guide you.
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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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