If you’re thinking about taking the step from renting to home ownership for the first time, the whole world of property purchase and mortgages can seem like
a complete maze. Add to this the PR that lenders have had over recent years and you could be forgiven for thinking it isn’t worth the hassle. If you feel this
way, it’s time to think again. It’s a fact that lenders are lending; borrowers are borrowing and the confidence has come right back into the property market in
Dublin and beyond, so if you feel confident that the time is right for you to get yourself on the home-ownership ladder, don’t hold back.
Here are our Top Ten Tips for anyone who’s thinking about applying for a mortgage for the first time:
1. Be ready to demonstrate that you’re serious about your finances. It’s all too easy to criticise lenders when they refuse to lend money, but put the shoe on the other foot and more often than not that reluctance makes more sense. Imagine a friend of yours has asked you for a loan, but you know they’re completely useless with their money. Would you lend to them? In most cases, the answer is “no”. It’s exactly the same with formal lenders; you need to be ready to demonstrate clearly to them that you’re serious about your finances.
2. Show that your job is secure. It’s rare to find a lender these days that will lend to first time borrowers if their income isn’t for full time and
permanent work either as an employee or self-employed. That said, state body job contracts that have an indefinite term might fit the bill, as well as in rare cases non-state body jobs that are of a very long-term nature. Typically though with regard to employment, banks will look for a minimum of 6-months work in a job (i.e. after probation) and for self-employed, 2 years trading.
3. Work out your income. Your income is one of the biggest driving factors when it comes to securing a mortgage. Banks assess on basic income and are prepared to add monthly guaranteed car allowance (once evidenced on payslip) in its entirety however they will only allow a percentage of the over-time and discretionary bonuses. Whilst each bank is different in this manner a good rule of thumb would be to add 33% of overtime and bonuses to the basic income. For self-employed individuals an average salary made up of your last 3 Notice of Assessments works for the majority of banks.
4. How much can you borrow? The general rule of thumb is that you can borrow 4 times your sole income or your joint incomes if you’re a couple. Moves are afoot to standarise this across the industry and the Central Bank are set to publish a paper in this regard. But note; as important as your income is, your repayment capacity is equally as important. What is this? The bank will assess how much they will lend to you based on your income but they will then stress test this amount (i.e. add 2% to the current variable rate) and see whether or not you can show in your day to day banking an ability to meet this repayment. Typically repayment capacity will be made up of rent (as you will stop this once you buy), regular monthly savings and a term loan that will
end when you take out your new mortgage. You should note that the repayment of credit card debt does not qualify towards repayment capacity.
5. Be honest about your credit. There’s no point in trying to hide, or accidentally forget about debts past or present. When it comes to securing a mortgage, it’s time to be completely honest about all card debts and loans and any issues you may have had in the past.
6. Face up to any spending issues. If you have spending issues, whether it’s simply that you love shoes too much; or you eat out too often or you’re facing something more serious like gambling, it’s definitely time to be straight with yourself and get a plan of action in place. Remember that banks will assess you over the last 6-12 months so make sure you put yourself back on track quite quickly.
7. Work out how much deposit you can afford. Deposits typically come from savings, but may also be gifted by kind parents or grandparents. Doing the rounds of potential kind donors before you start your mortgage process is the best idea because it allows you to know exactly how much you have to put down on your purchase and might just swing a mortgage deal in your favour.
8. Be realistic. There’s no point in dreaming that you’re going to be able to buy a castle if a studio apartment is more within your price range. There are plenty of borrowing simulators online, so before you start shopping around for a property, do some sums and if anything aim lower than you think might be possible. That way you won’t be disappointed.
9. Know what your costs are likely to be. The cost of buying a house or an apartment is only one element of your overall spend. You need to take into account survey fees, legal fees, assurances and any other fees that might fall into your transaction. Be smart and check out what they’re likely to be in advance so you can be prepared and not shocked.
10.Work with someone you get along with and trust. It kind of goes without saying, but let us say it anyway…when you’re looking to secure your first mortgage, it’s essential that you work with a mortgage advisor who understands your needs, your motivations and speaks your language. Working that way will make the whole process much, much easier and more pleasurable.
If you’d like to chat through the process of securing a mortgage (first time or remortgage), why not get in touch? We’re here to help and it costs absolutely nothing to chat!
Author: Fran Cooke