First Time Buyer Queries

Hi,

Potential (hopefully!) first time home buyer here, looking for some info. I've searched many a forum but can't seem to find specific answers to these. Would be looking to make a purchase in the next 1-2 years, with my better half. Any help/advice/similar experiences would be great. Also have a query on where to live in the Location, Location forum.

Our situation:

Me: 26 nearing 27, full time permanent position in established B2B private firm, on 30k a year + varying commission.

Her: 25, full time permanent position in childcare services industry, on 18k a year.

Current savings: 32k total (primarily mine, structured savings of at least 1k a month), with 1.3k being added each month at present. No outstanding debts/dependents, but do wish to have children.

Both living at home, insured on parents cars but would be buying a small second hand car jointly close to time of house purchase if possible.

Would hope to have at least 45k saved purely for a deposit + 3.5k ish for fees etc by the time we're applying. Only interested in purchasing a house, not interested in apartments/management fees (we'll be taxed enough as is!)

From mortgage calculators online it seems like we could potentially be approved for 130-160k, term 25-30 years.

Before we go to a bank we basically wish to get our savings in order, and manage our expectations on where we can live.

Key financial questions:
1) Any ideas on what value mortgage we could realistically aim for - i.e. are the calculators a good ballpark figure or pure invention?

2) How much should we ideally leave ourselves with in a current account at minimum after downpayment? (Gut tells me 6k as a base)

3) How much should we typically set aside for furnishings, small refurbishments for an "average" home (if there is such a thing)? (10k?)

4) Stress-testing: with banks stress testing mortgage applicants (taking into account 2% interest rate increases and cost of living)
how much should we show we are saving per month (e,g. 1000 for mortgage repayments + 800 bills/food + 200 misc expenses = 2000 per month savings target?)

In short, what is the minimum we should be saving and doing on top of a deposit before even bothering to apply for a mortgage?

Can anyone give any advise on on these?

Thanks for reading!

Here is the formula the banks apply. I know this is in use at BOI and AIB although the NDI thresholds could have changed in the last few months. Plug in your figures and you'll get a good indication.
Most likely the banks will want to see higher than 3.5k for fees and others since you are currently living at home. The (rightly?) assume that people will buy stuff when moving into their new house. I assume the funds from point 3 are for this, so if they can see that separate to the deposit and fees they'll be happy.

First they work out your net income per month.
Next they remove 250 per child.
Mortgage is stress tested at the current rate + 2% or 6%, which ever is higher, then that is taken off.
Any loans are taken off as well.
The remaining amount then needs to be above their Net Disposable Income threshold. For a single person is it €1250 per month and I'm told a couple is €1750

A worked example
Assuming no pension or other deductions, your salary gives €2,927.78.
-2 kids = 2427.78
-NDI threshold = 677.78

Working backwards on a 30year mortgage @ 6% (http://www.drcalculator.com/mortgage/ is very good for this) you get a max mortgage approval of 113,418.


Few other comments, some housing estates have management fees too. Something to watch out for.

Also you didn't say if you are married or not. If you aren't, you may actually get more applying as a single person. Run the figures and check. Her lack of savings could impact things but mostly its just strange how the figures work out.
Also if you aren't married, read over some of the mortgage agreement threads here. Things can get messy in the future when you least expect them.

Hi ryaner, thank you very much for the detailed reply, much appreciated.

My net income per month would be 2080, no kids, no outstanding loans/cc payments due.

Hers would be 1430, no kids, no outstanding loans/cc payments due.

So 3510 net
less 0 kids at present
less 0 pension
less NDI 1750
= 1760

Taking into account kids down the line a bit, car, insurance (I assume this would be taken from my net figures rather than considered part of our NDI?) etc that could leave only 9ish hundred a month - from a quick look from the calculator that would be a mortgage principal of around 150k over 30 years @ 6%

Would the possibility of kids etc be taken into account at the time of applying? (i.e. would the banks look at a "likely" future scenario or just one's current scenario?)

We're not currently married, but marriage would be on the cards if buying together (within 1 year of house purchase - pretty much the "traditional" Irish couple if you will). I figured her lack of savings could cause an issue, she is working on building them up on her side.

I did notice some estates have management fees, so will keep an eye out for those. My point 3 would be for savings to buy items for the house as you suggest, and I can show this in an account separate to the deposit and fees. I can also increase savings for fees over a couple months, so this shouldn't cause an issue (famous last words!)

Cheers!

I haven't heard of kids been taken into account when applying when you don't have them. If they did that, they'd have to start saying to everyone applying that there is a possibility you could have 7 in the future if they wanted to be overly stupid. Reality is that people generally adjust their circumstances to fit.

I have heard of at least one occasion where the mortgage was approved on the basis of no children, but then withdrawn when a pregnant lady arrived into the bank near the end of the process.

The car and insurance would reduce the net amount assuming they are direct debt payments, paying insurance in a one off lump sum generally doesn't reduce things, however I don't see how you could go from 1760 net a month to ~900net a month with a car and insurance? Not even the banks are that pessimistic

True re: the kids scenario, I guess if they started with that as you say they could take ridiculous scenarios into play.

My 900ish a month is probably a little pessimistic after a bit more research on insurance costs, but I'd say it's wise to not take the maximum mortgage you can get (particularly if planning kids down the line a little bit).

Thanks again for your help, I think that gives me a pretty good idea of the financial end of things to stat with!