Key Post Preparing for a mortgage application

LDFerguson

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If you're considering applying for a mortgage in the future, there are some steps you should take now. If anyone wants to add to these, please do and they can be incorporated into the post.

You are unlikely to get a mortgage if...

  • You cannot show a history of being able to pay the proposed mortgage repayments. Stress-test the repayments on the proposed mortgage - calculate them using an interest rate of at least 6%. If your proposed mortgage repayments are €1,200 per month (stress-tested) and you're paying €700 per month rent, you'd need to show a history of saving at least €500 per month.
  • You have arrears on your ICB record in recent years.
  • You are on probation or on a temporary contract.
  • You are recently self-employed with less than three years' audited or unaudited accounts available.
  • You don't have a deposit of at least 8% plus legal fees and Stamp Duty.
Keep a good savings record
  • Try to save a regular amount each month, rather than apparently random amounts.
  • Keep the paper trail simple. Some people have very complicated systems of savings involving transfers between multiple current accounts and savings accounts. It can be very hard to follow how much is being saved each month. From a mortgage application perspective, it's easier if the savings are all going into just one or two savings accounts.
  • Don't take money back out of your savings accounts. If you're saving €500 per month but take out €1,500 for your Summer holidays and €1,500 at Christmas, that will only count as regular savings of €250 per month on a mortgage application.
  • If you have a parent, relative or friend who you know will help you out financially towards buying a house in the future and you have debts now, don't wait to ask them for their help until you're actually buying the house. If they're willing, get them to give you the money to clear the debts now and you should immediately increase your monthly savings by the amount you were paying towards debts.
Make sure your rent and savings are going through your bank account...
where they can be easily identified on the bank statements. If you pay your rent in cash, switch to a Standing Order or pay it by Internet Banking each month, so the transaction appears on your bank statement as "Rent". KBC refused this poster a mortgage because he was paying his rent in cash. Should I use my savings to pay off debts?

Usually, yes, unless the loan has penalties for clearing it off early. You're almost certainly paying more interest on a loan than you're getting on your savings.

There are a few exceptions. For example, if paying off a loan is going to eat into your deposit and your income is sufficiently strong that you qualify for the required mortgage, even taking account of the existing loan repayments, then you might consider not paying off the loan.



Keep your current account in good order for at least six months

Try not to go overdrawn at all, even if you have an agreed overdraft facility. Never go into unauthorised overdrafts so that referral fees, bounced cheques or unpaid Direct Debits appear on your current account, even if they're paid later. A few unauthorised overdrawings in a six month period can be enough to cause a mortgage application to be declined.

Keep your credit card in good order for at least six months

Make sure that you don't miss the monthly minimum payment. Ideally avoid interest, although this has to be balanced against showing a regular savings pattern.


Does it matter where I bank?

That depends. If your current account has been maintained in a haphazard fashion for years, then be good for about six months (see above) and apply for a mortgage to a different bank. Alternatively change your current account provider at least six months in advance of your mortgage application. Remember that if you apply for a mortgage to a different bank, the mortgage lender can only see the current account statements that you give them. If you apply for a mortgage to the bank that holds your current account, they can see as far back as they want, skeletons and all.

Conversely, if your current account has always been maintained impeccably then it can help to apply to the same bank for your mortgage as they can see a long history of you being a good customer.


Consider moving home

If it's a practical proposition for you, consider moving back home if your family will let you live there for low or no rent. It can really speed up your saving for a deposit.
 

LDFerguson

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Some of these may not apply to everyone.

Check your ICB record

Check your ICB record to make sure that it is correct and clean. Occasionally there are errors which you can fix, but get them fixed before you apply for a mortgage.

Give a lender details of all savings and investments, even if you're not using them towards the house purchase.

If you have a share portfolio or other investments but don't need the cash to fund your house purchase, show the lender evidence anyway. It indicates that you're good with money and are not spending every cent you earn. Similarly, if you're paying an amount every month voluntarily into a pension (e.g. AVCs) point this out to the lender, especially if it's coming directly out of your salary. While it's of no great relevance to your house purchase, it's relevant in that it could be stopped if you were having trouble meeting your mortgage repayments in the future.

Don't make transfers to a betting account
This could make the lender nervous that you have a gambling problem.
 

Pushkin

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Thanks for the very useful post. Would be great to get some advice in terms of timing of mortgage application. I am an FTB - single, female, 41. I have circa €20K inheritance and have been saving 500 Euro monthly since May 2012 plus I pay rent of 400 monthly. Very small credit card debt (€800) which i pay regularly and use for small amounts of spending when needed for online bookings etc. I realise that I am not saving enough plus rent to qualify for stress test at 6% on a loan of 175K - I need to add 200-300 to my regular savings. Bank (AIB) have said in principle they would lend me 200K (90%) I only want about 175K after 10% deposit. Income is 52K (2,800 net monthly). I will start saving the 300 extra from Jan 2013 - do I need to wait 6 months before making formal application or is it realistic to apply formally 3 months? I have no other debts.
 

ryaner

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@Pushkin, firstly pay off your credit card. Even if it means missing a months worth of savings. Sooner the better. The interest rates on the credit card are too high to justify not doing so.

Once the bank can see a few months of the required savings it should be enough to apply. As Liam mentioned, it'll need to be clear in the statements.
 

Brendan Burgess

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Hi Liam

Excellent post. Thanks very much.

What about credit cards?

I initially agreed with ryaner that you should pay off your credit card in full each month to avoid expensive interest and to show that you manage your money smartly.

But would it be better to pay for my holidays with my credit card and continue to save €500 per month in my savings account?

The reality is that most people's expenditure is volatile. Once off bills such as insurance or holidays can mean that the person doesn't save for a couple of months.

Does the bank want to see €500 per month or would they be happy to see a gradual build up of accumulated savings to €6,000 over the year with an occasional reduction to pay for once off big bills?
 

LDFerguson

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What about credit cards?

I initially agreed with ryaner that you should pay off your credit card in full each month to avoid expensive interest and to show that you manage your money smartly.

But would it be better to pay for my holidays with my credit card and continue to save €500 per month in my savings account?
Not really as a bank will want to see a few credit card statements as part of a mortgage application anyway.

The reality is that most people's expenditure is volatile. Once off bills such as insurance or holidays can mean that the person doesn't save for a couple of months.

Does the bank want to see €500 per month or would they be happy to see a gradual build up of accumulated savings to €6,000 over the year with an occasional reduction to pay for once off big bills?
To be clear - the figure of €500 was just an example I was using. In practice, a bank wants to see a history of (Regular Savings + Rent) = (Stress-tested mortgage repayment).

It won't wash to say that your expenditure is volatile and therefore you don't save some months as your mortgage repayments aren't volatile and have to be paid every month. So in this example, your savings should be more than €500 in good months and no less than €500 in bad months. If you can't afford to do that consistently then a bank will consider that you can't afford the mortgage repayment.
 

Pushkin

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Thanks for the replies - I think it makes sense to take the money from inheritance to clear the credit card while maintaining cuurrent savings without skipping a month plus up the amount of savings immediately. I do also pay AVCs for pension directly through payroll so can refer to this also in application. Will give it a shot in 3 months... Many thanks, really useful.
 

Brendan Burgess

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I do also pay AVCs for pension directly through payroll so can refer to this also in application.
Take a break from the AVCs. Don't make life complicated. Have as much savings as possible. After you get your mortgage, you can resume your AVCs and make up for the lost contributions.

The only reason to do AVCs would be if your employer was matching them.

Brendan
 

Pushkin

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Thanks Brendan, employer is matching so it seems worth keeping them up and can be a fall back if rates rise to a level that becomes difficult over next few years I guess. Can I ask one more thing (?), do people feel it is worth going through a broker/shopping around or just keeping things simple and going with own my bank (AIB) - I am not great at managing finance and the associated administration - should I look for independent financial advice and use a broker or try to do it alone to keep costs down? I am not sure of the real benefits of third parties but am also conscious that I can be flummoxed by finance related admin...
 

Bronte

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You are unlikely to get a mortgage if...

  • You have arrears on your ICB record in recent years.
  • You are on probation or on a temporary contract.
  • You are recently self-employed with less than three years' audited or unaudited accounts available.
Excellent key posts. In relation to those 3 points are they for single borrowers and would it make a difference if you were married and your partner was permanently employed in a good company or is a civil servant.

Another question, you mentioned at least 8% deposit, but what is the norm they ask for? Is it 10%?
 

LDFerguson

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The first one would cause a problem getting a joint mortgage, unless the ICB issue is minor and in the distant past.

You could get a joint mortgage with either of the second two, but only the income of the employee would be taken into account.

Off the top of my head, AIB will lend 92%, Bank of Ireland, Permanent TSB, Ulster Bank and ICS will go to 90%. KBC will go to 80%.
 

kennyb3

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Would the bank you bank with tend to look at CC history over 6 months? I've a couple of deposits to an old betting account circa 9 months ago.

Also have you heard how banks view money transferred abroad and back again (Moved circa €20k to Germany 18months ago then back again recently)

Everything else is in place and ready to go.
 

Brendan Burgess

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If commission forms a high part of your income, try to restructure your salary
Some jobs have low basics and high commission. Ask your employer to change this so that you get a higher basic and lower commission.
 
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