Introduction: Congratulations on your decision to purchase a home—a remarkable achievement once complete! While this marks an exciting time, it can also feel overwhelming, given the complexities of the mortgage process. Managing finances, securing a deposit, navigating lender options, interest rates, and term lengths can be daunting. To kickstart your understanding and preparation, we’ve created this concise guide to unravel the mortgage process.
Factors to Consider:
- Income and Employment Stability:
- Generally, lenders are looking for applicants with a solid and steady income.
- Finish any probationary period and be fully permanent before applying.
- Demonstrate at least 6-12 months of continuous employment.
- If you are self-employed, be prepared to show two or three years’ tax returns or audited accounts.
- The necessary paperwork includes a current or most recent P60, a completed salary certificate from your employer, three recent payslips, and a completed Form 11/Chapter 4 and tax clearance certificate.
- Debt-to-Income Ratio:
- Lenders assess your ability to meet mortgage payments and stress test against potential interest rate rises.
- Prepare a paper trail detailing your monthly outgoings, including savings, loan repayments, rent, and existing mortgage repayments.
- Determining Your Borrowing Capacity:
- Vital to shaping your house-buying budget.
- Regulations allow you to borrow 3.5 to 4 times your annual salary.
- Lenders typically lend up to 90% of the home price for first and second-time buyers and 80% for third or more-time buyers.
- Research widely to compare offers from different lenders.
- Save Your Deposit:
- Lenders finance up to 90% of the home price; you’ll need a minimum 10% deposit.
- Gradually saving demonstrates disciplined savings and adept income handling.
- Explore alternate sources such as work bonuses, gifts, or inheritances for your deposit.
- First-time buyers considering new-build homes can inquire about the Help to Buy Incentive.
Assessing Your Borrowing Capacity: Your lender can finance up to 90% of the home price; therefore, you’ll need to contribute a minimum 10% deposit. Saving gradually is advisable, preferably well before applying for a mortgage. This demonstrates disciplined savings and adept income handling to potential lenders. However, alternate sources such as work bonuses, gifts, or inheritances can also fund your deposit.
Employment and Financial Records: Generally, lenders are looking for applicants with a solid and steady income. This means that you must have finished any probationary period, be fully permanent, and demonstrate at least 6-12 months of continuous employment. If your monthly wage includes overtime, bonuses, and commission, a percentage of these may be considered by some lenders. If you are self-employed, a lender will want to see two or three years’ tax returns or audited accounts. To get yourself ready for applying, get the following paperwork ready:
- A current or most recent P60 confirming your salary.
- A completed salary certificate from your employer detailing basic and variable remuneration.
- Three recent payslips.
- A completed Form 11/Chapter 4 and tax clearance certificate.
Demonstrating an Ability to Repay: When you apply for a mortgage, your lender will apply to the Irish Credit Bureau (ICB), which maintains a database of information showing any repayment history you may have on loans such as mortgages, car loans, and credit cards. Typically, your repayment history over a five-year period is included in this credit report. You can order your own credit report prior to applying for a mortgage; if your credit score is poor and can be improved in the short to medium term, your broker may recommend holding off on applying until your credit score improves.
Financial Habits to Consider:
- Manage your credit card—try to pay off the balance each month and avoid building up expensive credit card debt.
- Live within your means—each month, demonstrate that you do not spend more than you earn.
- Keep clear financial records—if you have multiple bank accounts, make sure the transactions between them are clear, clean, and consistent.
Conclusion: Remember that this is probably the biggest financial decision of your life—putting in some preparation, developing good financial habits, and taking the time to shop around can save you a lot of money and stress over the lifetime of your mortgage. So, take your time and talk to the experts.
For more information and personalized guidance, contact Midlands Real Estate at www.mre.ie or info@mre.ie.
Disclaimer: The contents of this document are intended and provided for information purposes only. Midlands Real Estate has attempted to ensure that the resource is current and accurate but cannot guarantee this. The resource is provided on the basis that persons accessing it undertake responsibility for assessing the relevance and accuracy of its content. Midlands Real Estate does not accept any liability to any person or body for the information (or the use of such information) provided in this resource.
