Getting ready to apply for a mortgage can feel like a daunting process but don’t worry, there are few prospective home buyers who are completely ready to apply for a mortgage from the outset. Most people will need some advice and we are here to help.
To help demystify the mortgage process, we’ve devised a practical pathway to help you get mortgage ready and to take the confusion and stress out of the process. See our five simple steps to getting ready to apply for a mortgage, and don’t hesitate to pick up the phone
Demonstrate your ability to repay.
Your capacity to repay your mortgage is perhaps the most important factor lenders will take into consideration when you apply for a loan. Lenders will want reassurance you can pay your mortgage not just now, but in the future in the event interest rates go up, and some will stress-test your repayment capacity by up to 2%.
Your capacity to repay your loan will take into account:
- regular monthly savings that show your commitment to building reserves;
- paying off any existing loans before taking on a mortgage;
- rental repayments that show regular deposits into a landlord’s account (or to a parent’s account if the prospective home buyer still lives at home); and
- consistent mortgage repayments to your lender in the event you are planning to trade up.
Provide evidence of your employment and income.
Employment and income are key factors that also contribute to your ability to repay a loan. In most cases, your lender will want evidence that you have been employed in a permanent role for at least six months and have successfully completed your probation. You will need to provide your most recent Employers Details Summary (new P60) that shows your income, a salary certificate completed by your employer, and three of your most recent payslips. If you are a business owner, your lender will typically want to review two or three years of audited accounts or tax returns, as well as a completed Form 11/Chapter 4 and tax clearance certificate.
Your income is used to help determine the amount you can borrow. Central Bank rules enable first home buyers to borrow four times their combined annual household income (or 3.5 times income for second or next time buyers).
Some lenders may offer exceptions to this rule depending on your individual circumstances. In general, however your lender will want to know:
- what components of your income are guaranteed and subject to change;
- your age and term of your mortgage;
- your current outgoings and financial commitments; and
- your living expenses.
Showing clear evidence of your income will not only streamline your mortgage application process but give your lender confidence in your ability to repay your loan.
Line up your deposit.
Prospective home buyers need a deposit to put towards the purchase price of their new home. Central Bank Rules stipulate buyers can borrow up to 90% of the value of the property. To help first-time buyers achieve a deposit, the government’s Help-to Buy (HTB) scheme offers €30,000 or 10% of the purchase price – whichever is the lower on new builds up to a max purchase price of €500,000. The First Home Scheme can also help here.
Many prospective home buyers also save for their deposit over months or years, which also counts towards evidence of ability to repay a loan. Buyer deposits can also be sourced from a monetary gift, equity from the sale of a property, inheritance or a bonus from an employer also.
Get spending under control.
In addition to wanting evidence of your employment and income, savings ability and capacity to repay a mortgage, your lender will look closely at your banking accounts and spending patterns. That means getting spending under control and showing your lender you can manage your spending responsibly. Take these tips into consideration:
- Try to settle your credit card balance each month and avoid letting your credit debt and associated interest to build up.
- Demonstrate that you spend less than you earn and can live comfortably within your means.
Your overall spending picture will be influenced by your credit history, which your lender will investigate as part of your mortgage application process. An application will be made to the central credit register about your repayment history on credit cards, car loans, personal loans and mortgages. Your credit report will normally cover a five-year period and highlight any missed repayments in that time. If you have concerns about your credit history, it is better to address them before you apply for your mortgage and take steps to improve your credit score.
Don’t forget associated costs.
Purchasing a home comes with a number of additional costs that are not initially front-of-mind with home buyers. That’s why it’s important to be aware of associated costs and ensure you have taken them into account when working out the amount you want to borrow. For example:
- Valuation fees: your lender will request an independent valuation of the property you plan to purchase before you draw down funds. These fees are variable but can cost in the vicinity of €150 + VAT.
- Stamp duty: this government fee applies on purchases at a rate of 1% of the purchase price up to €1,000,000 and 2% of any value over that.
- Solicitor’s fees: your solicitor will handle your property conveyance. Fees vary but you will need to determine whether your solicitor charges a flat rate or a percentage of the purchase price.
- Engineer’s survey: a professional survey of the structure of the home you plan to purchase means no surprises after you’ve moved in. Fees once again will vary but typically are priced from €500 + VAT.
Mortgage cover and home insurance: your lender will likely require you to take out mortgage protection and home insurance as a requirement of your home loan. Talk to your broker about protection policies to ensure you are getting the best deal.
While preparing to apply for a mortgage might seem overwhelming, our five simple steps help break down the process and provide clarity around what lenders will be looking for. Step One is proving your capacity to pay a mortgage, and is one of the key factors that will influence a lender’s decision to grant you a mortgage. Step Two is to provide evidence of your income, not only as part of providing evidence of your capacity to repay, but to help your lender determine how much you can borrow. Step Three is to arrange your deposit, which can be sourced from the Help-ty-Buy scheme for first home buyers, or from savings, an inheritance or monetary gift. Step Four is to manage your spending, eliminating excesses, demonstrating you can live within your means, and checking your credit history and taking steps to improve it before you apply for a mortgage if necessary. Our fifth and final step reminds you to prepare for a range of hidden costs such as the cost of a property valuation, government stamp duty on the purchased property, your solicitor’s fees for the managing the conveyance, and other associated costs. For more tips to help you break down the mortgage preparation process into manageable steps, get in touch with our team.
While the mortgage application process was not designed to be easy, our specialist mortgage advisors at Mason Wealth are dedicated to giving our customers the right information and guidance to support them through the process. We know that getting mortgage ready can sometimes feel overwhelming, and our highly experienced team can provide you with advice specific to your situation to put you on the right track.
As a broker, Mason Wealth can provide you with a range of options when it comes to lenders, and help you make informed decisions about which is best for you.
We prepare your mortgage application and submit on your behalf, ensuring you have the right documents and evidence trails to avoid delays down the track.
To find out more about the mortgage application process, call Mason Wealth today on (01) 902 0001 or email us at [email protected]. We’re here for you 100% of the way!