Planning to buy your first home is a big move. As well as the emotional side of deciding to become a home owner, there is a lot of paperwork and criteria to satisfy before a bank will give you a mortgage. This is my guide to help first time buyers guide to get a mortgage.
Deposit
You can borrow to 90% of first €220,000 of the purchase cost of the property. If the house is worth more than €220,000, you must have a 20% deposit for anything over that amount e.g. for a house worth €300,000 you need a €38,000 deposit. This is known as the Loan to Value (LTV). You will have to come up with the rest yourself. You also have to show them that you are able to pay the other transaction costs associated with a house purchase. Stamp duty is 1% of the house value up to €1m and solicitors fees will be up to €2,000. You also have to add surveyors fees of a few hundred.
Most lenders still allow people to be gifted the deposit but the giftor has to sign a declaration stating that they will not look for the money back.
Ability to make repayments
There are stories from The Celtic Tiger of people getting mortgages and not even being able to make the first repayment. That is the type of scenario that banks want to avoid so they want to make sure that you are able to meet your repayments. To do this, they stress test your ability to make the repayments. That is, they look at the rates available today and they add 2% to it. If you can show that you can meet these repayments, you have satisfied this criteria. So, how can you show a bank that you can meet these repayments:
- Savings – If you are still living at home, you have to show a regular pattern of savings at the level of monthly mortgage repayments.
- Rent – If you are renting, your monthly rent will be taken into consideration as obviously you will stop paying rental income when you start paying a mortgage.
- Discounting other loans and outgoings – show them that loans will be paid off before you draw down the mortgage. Loan repayments can seriously reduce the amount that a bank will lend you so it is a good idea to clear all other loans before applying for a mortgage.
Net Disposable Income
Even if you have shown the means to meet the repayments, you have to show that you have enough disposable income afterwards to live on. The amounts vary from lender to lender. One providers amounts are below.
- Single Applicant €1,300 per month
- Joint Applicants €2,050 per month
- Additional for each child €250 per month
Regular Spending Patterns
Lenders want to give loans to people who are responsible with their money. They ask for 12 months current account and savings account statements. It really helps your application if you can show that you live within your means and save regularly every month.
Credit Cards & Overdrafts
You have to provide credit card statements for the last 12 months and your overdraft will be seen on your current account statements. Get rid of your overdraft altogether as this is seen as a loan and will reduce the amount you can get. Use your credit card sparingly and pay off the balance in full every month.
Mortgage applications are a lot more than filling out forms and submitting a load of paperwork. You have to sell yourself to the lenders and show them that you represent a low risk to them. It is essential that you package yourself in the right way and saving regularly is the best way to start.