Buying a house is one of the biggest steps that people will make in their lifetime and can be a stressful business.
Of course, the first step is to get a mortgage – often a prolonged process in itself.
If you’re thinking of getting on to that property ladder, putting the groundwork in before you approach a bank can save a lot of time and energy.
We teamed up with financial advisor Lorraine Cooke to find out the answers to the most common questions about getting a mortgage…
1. Have I saved enough for a deposit?
If you want to get a mortgage, one of the first considerations is
a deposit. From 1 January 2017, the deposit rules for first time
buyers have be changed.
First time buyers will now be required to have 10% of the purchase
price, regardless of the value of the property. The previous ceiling
at €220,000 for 90% lending has been removed. Buyers trading
up/down can borrow up to 80% of the purchase price.
The Help to Buy incentive (HTB) from Revenue is designed to assist
first-time buyers with obtaining the deposit required to purchase or
self-build a new house or apartment to live in as their home.
The incentive provides for a refund of income tax and DIRT paid
over the previous four tax years to first-time buyers who purchase or
self-build a new house or apartment to live in as their home. Find
out more here.
When it comes to how much you can borrow, the general guideline is
3.5 times your salary but banks can make a exception for some
2. Can I afford a mortgage?
The next thing the lender will assess is your ability to pay back the loan, which requires proof that you have the earnings and self-discipline to repay your mortgage – not just for the first year but long into the future.
A ‘stress tested’ mortgage calculation will be completed.This is the monthly payment you sign up for initially with a couple of per cent added to see if you can still meet your repayments if interest rates rise.
If you have been repaying this ‘stress tested’ amount via rent and savings for at least six months, you will have met the criteria for this assessment. If you are availing of the Help to Buy Incentive (HTB) for your deposit, you will still need to demonstrate proven repayment ability.
3. Is my paperwork up to scratch?
Your bank statements, accounts (if self employed) and/or tax returns must be perfect to ensure the application is ready to present to the suitable lenders. If you are paying rent, for example, make sure it is paid through your bank account to show the lender you have proven repayment ability for at least six months.
4. Do I have a decent credit record?
Lenders today will scrutinise your bank statements and the profile of the account. If you have an overdraft and want to secure a mortgage, don’t use it and always ensure direct debits are met on their due dates.
5. Have I been saving consistently?
The lender not only will want you to have your deposit saved (or part of, if obtaining a parental gift), the level of savings per month will be taken into your proven repayment ability to service the mortgage. Always save a consistent amount each month and do not ‘dip into it’ .
6. Do I have any short term and credit card debt?
The level of debt will reduce your ability to borrow quite significantly. On credit cards, transactions like cash withdrawals and online betting are not favourable looked upon when applying for a mortgage.
7. Do I need advice from a financial advisor?
All lenders have different criteria and an independent advisor is an expert in assessing your application for the right lender. They also have years of knowledge, expertise and technical advice to offer. If your application is not ready, they will advise you how to prepare it for presentation at a later date.
Lorraine Cooke set up Jigsaw Financial Solutions in August 2011 as a one-stop-shop for individuals and businesses to look after their tax and financial needs. Find out more at www.jigsawfinancialsolutions.ie.