11 Mortgage tips

Being a first time buyer actively looking to purchase a home is often a daunting situation, often made worse by the unknown. While some people find it a painless process others have personal circumstances or lifestyle habits which stack the odds against them which they are not even aware of.

That is why we have made a list of eleven tips that first time buyer should be aware of prior to applying for a mortgage, because if you only find out about them after you make your application (and in particular if it results in a credit decline) then it could set you back months at least if not years.

1. Be in a permanent job finished probation and ideally working continuously for 2 years:
This is a good rule of thumb, an ability to repay is the key consideration with lenders, and the way they determine this by seeing an income history that has a likelihood of continuing. A loan is only underwritten once, at origination, so the lender knows that taking a chance early on means taking a bigger chance down the road (something we are continuously reminded of as we deal with our banking and mortgage crisis).  A good work history and what you do with your money during that time are the first and largest hurdle a prospective borrower faces, which leads to the second point.

2. Have savings:
Even if you are getting help with the deposit you have to show the capacity to save, I often think about a mortgage as a type of ‘forced savings’ which a person might not otherwise do if they were not in debt. Demonstrating savings is vital, ideally you can show that you are able to put aside the same amount of money that your mortgage will cost, so if you are searching for homes where financing them would cost say €1,200 a month then you should aim to show a proven ability to repay that loan by saving that amount before undertaking it. This is a sure-fire method for starting off on the right foot. At the same time, you’ll want to ensure you don’t have ‘repayment killers’ which are other debts.

3. Have no loans or rolling credit card debts: Any existing loan facility will come off of your disposable income for mortgage calculation purposes, so clear loans where possible, in particular, don’t carry any rolling debt like credit cards. Lenders know that overall debt is a huge portion of their existing mortgage problem and any propensity to carry debts like these (bearing in mind credit cards are amongst the most expensive) is a no-no. Taking on a huge debt like a mortgage is hard enough, or should I say ‘repaying the debt’ is, without the added reduction in disposable income that short term loans and credit cards represent, so start with the cleanest bill of financial health you can, and that means savings and no debts.

4. Try to buy before you have kids: With renters increasing 47% between the last two census’s it shows that people are not abandoning household formation, they just aren’t doing it in conjunction with buying houses. What we have seen in 2012 was a ‘child barrier’ to lending, where people who have children are finding it exceedingly difficult to buy a home. This is because loan underwriters whack chunks off of your available disposable income (whether you spend it or not, it’s just part of the calculation) if you have children. This makes sense from a logical point of view, raising children is expensive, but from a behavioural point of view providing those children with a long term home is perhaps a good thing and while the intention is good on behalf of the parents, the banks are hesitant to lend. If we were to talk about a trend in credit refusals the definite winner in 2012 was one income families with children, we found those loans nigh impossible to place.

5. If you are renting privately or living with relatives pay it by standing:
This is important because it gives traceable account of how money is used, sometimes people say ‘I take out €500 cash every two weeks as rent’, that doesn’t matter, if it isn’t fully audit-able then it isn’t fully believed, so make it easy for the lender to see where your money goes and when.

6. Maintain good current accounts and stay out of your overdraft:
Overdrafts are a short term credit we already looked at, ‘good accounts’ mean no referral fees, and not being at a near zero balance at the end of the month, if you always end up in your overdraft each month I can say in advance, your odds of getting a mortgage diminish rapidly.

7. Have a clean credit record:
Never miss a car loan, personal or credit card payment. A single blip on your credit equals a decline, plain and simple.

8. Be from the EU and if not have a stamp 4 visa: This has to do with residency rights, if you can’t satisfy either then forget about applying.

9. If you are self employed make sure to have updated accounts and tax returns: The actual figure taken is often not your accounts, but your tax statement – the bottom line figure for the lenders is the average income declared to revenue for the last 2 years so make sure to show as much income as possible and not write too much off in expenses! The banks believe the tax man more than the accountant.

10. don’t gamble online: While we are agnostic about gambling, banks are not, we have seen this used as a reason for refusing otherwise perfect credit applications.

11. don’t make extravagant purchases in the 6 – 12 months prior to applying: Again, we aren’t saying how you should live but if you want to get a mortgage then save the trip of a lifetime until after you have your house keys

Comments

  1. Jo Wall

    Any advice for expats hoping to return home in a few years, what would we need to do? We have been paying social insurance in Ireland for last 3 years and home to come home to buy in 3 years, how can expats get mortgages

  2. Denis

    Will I qualify as a non-national on stamp 4 when my wife (who doesn’t work) is on stamp 3? In a local AIB branch I was told both spouses must be at least on stamp 4, even if only my income is counted

  3. @Jo Wall – send in some details via the online application and a qualified broker will respond and be able to give you a full breakdown of what is required. Suffice to say, we do obtain loans for expats on a regular basis.

    @Denis That is the AIB criteria, not every bank is the same, as your wife isn’t working her status (once married to you being the basis on which she can stay here indefinitely) shouldn’t undo the application – it’s being made on the strength of your income alone.

  4. owen

    hi im working in oz for the last 15 months with the same company and have a 4 year visa with them my fiance is working at home for the same company for the past 4 years, we have our own site and great saving record and have a heathy savings account, with me working out do you think this would be an issue when applying for a mortgage with BOI
    ?

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