You may have found your home first, then made an appointment to apply for a mortgage. These days, however, if you’re not ready for your mortgage, you may be wasting your time looking for a new home.
Indeed, ahead of a launch at Graydon in Newcastle earlier this month, Colm Byrne, manager of Sherry FitzGerald New Homes, noted that “it would be quite a surprise to see someone turn up tomorrow morning without an approved loan”.
So if you don’t want to start your home search on the back foot, what should you do to make sure you’re mortgage ready?
Approval in principle
First you need to determine how much you can borrow. Michael Dowling of Dowling Financial says most people will use an online calculator to work out their total based on Central Bank lending rules (see below).
However, he cautions against entering payments on top of your basic income unless you have a regular history of them. “If you get overtime, bonuses, or commissions, lenders will take that into account, but they’ll want to see proof over two or three years,” he advises.
Some people will be entitled to more than the typical income of 3.5 times, but they tend to earn higher incomes. As a rule of thumb, Dowling suggests that single candidates would typically need a base salary of €60,000, while a couple would need a combined income of €80,000″ to put them on the pitch, in terms exceptional”.
It is also important to show proof of savings and/or rent payment. While personal debts — like a car loan or a credit card — aren’t necessarily a deal breaker, Dowling says if you can pay them off, you may qualify for a larger mortgage.
However, childcare costs may be impossible to reduce, and these may have a significant impact on repayment capacity; which in turn will reduce the amount you could borrow.
And remember, don’t apply for a mortgage if you have unpaid items or referral fees in your checking account; Dowling says to wait six months and then apply, because it will really defeat your application.
What real estate agents expect
Once you have gone through the paperwork and obtained your Approval in Principle (AIP) from a lender, you will be able to reserve a new home by being able to show “proof of funds”, via your AIP letter, to the sales agent .
But should you redact the exact amount first? Byrne says estate agents need to see this figure to take your reservation – but no record of these letters/financial details are kept: just show the documents to an agent.
If you’re a cash buyer, you’ll also need to show proof of funds — according to Byrne, a letter from your attorney confirming you have the funds to complete the sale, or seeing a bank statement showing the funds are in place will suffice.
If you don’t have this letter, you will find yourself at a disadvantage as many properties will be booked in the days surrounding the launch.
“[Developers] want people who are ready to sign the contract, once it’s issued, within 28 days,” says Gina Kennedy, Director of New Homes at DNG. “So if you only get mortgage approval (at the time of a launch), you might be missing the boat,” she says, urging people to “get organized.”
Ideally, new home agents say you should also have your solicitor’s contact details handy, as well as approval for purchase assistance, if you are eligible or benefiting from it.
Remember that even if you qualify for Help-to-Buy, you will still need money to make a reservation deposit – usually between €3,000 and €5,000 – so you will need some of the funds to pay for this. “It’s basically part of their cash deposit,” says Byrne.
Raise that mortgage
Using purchase assistance (remember it’s due to expire at the end of this year, but will likely be extended in the September budget) can allow you to increase your budget.
Of course, this will depend on your level of savings. If, for example, you saved €40,000 on a down payment, then find that you will only need €10,000 to qualify for the maximum tax rebate of €30,000 under the purchase aid , you can use your €30,000 for the purchase. price of your house.
If you apply for equity participation, or the First Home program, which will see the state take a stake, up to 30%, in the purchase of a new home up to a value of around 450 000 € (different price limits apply across the country), your budget will also increase accordingly.
So, for example, a buyer with a mortgage of €280,000 could afford a new house worth €311,000 – but if they applied for the First Home scheme, they could buy a house sold for €440,000 (mortgage of €280,000 plus government participation of €120,000 plus deposit of €40,000).
As with your AIP letter and purchase assistance information, Kennedy also suggests people obtain a certificate of eligibility for this program to bring to the launch of new homes. This gives you an estimate of the net worth you can get from the plan.
Remember that if you are also receiving purchase assistance, the maximum you can receive under the first home is 20% of the cost of the new home. “What you’ll probably see is people using 10% home buying assistance and 20% first home,” Byrne says of the new program.
Finally, keep in mind that buying a home is only the first of the costs you will encounter. First-time buyers should also remember that there are “lawyer’s fees, stamp duty, insurance, expert fees, survey fees and also the costs of furnishing the property”, warns Kennedy.
Mortgage rules: what you need to know
- Central Bank mortgage rules now govern all loan agreements.
- These rules mean that more first-time buyers (FTB) can borrow 90% of the purchase price of a house, while more second home buyers (SSB) can borrow 80% of the purchase price. This means that you will probably have to be able to finance 10 or 20% of the purchase price yourself – although Help-to-Buy can help with FTBs.
- As for how much you can borrow, mortgage rules say you can only borrow 3.5 times your income.
- Now there are exemptions. First, on deposit, the Central Bank allows lenders to lend 5% of FTBs at more than 90% of the purchase price and 20% of SSBs at more than 80%.
- And a fifth of FTBs and 10% of SSBs will be able to borrow up to five times their income if they qualify for an exemption.
- However, qualifying for an exemption is not always easy and they are not always so common. Central Bank figures, for example, show that in 2021 only six FTBS (950 SSB) borrowed more than 90% of the purchase price, while 2,468 (549 SSB) borrowed more than 3.5 times their income.
- In short, if you are an FTB and your individual/joint income is €80,000, you will be able to borrow €280,000, which, with a down payment of around €31,000, will finance the sale of a home for around €311. 000 €. If you benefit from an exemption of 4.5 times your income, your purchasing power will increase to €400,000.