2020 lending criteria update
In order to buy a home you need quite a lot of money. Unless you are lucky enough to have all this money sitting in your bank account, you will most likely need to borrow the bulk of the money required.
As a first time buyer you will need to have 10% of the purchase price yourself, as one of the basic qualifying conditions of getting a home loan. A Home Loan or Mortgage as it is generally known, is the loan you you take out to buy a home.
In general your deposit will come from your own savings. Some buyers are lucky enough to get gifts from parents. If gifts are available - great, but most lenders ( not all) will want to see a sustained effort by you to build up savings, as preparation for the responsibility of taking out a mortgage. For many, saving is very difficult if you have large rent payments. There was outrage recently when a politician suggested that would - be buyers should perhaps live with parents when saving for a home.To us, this makes sense if the parents are good enough to facilitate such an arrangement.It certainly speeds up the saving process.
The help to buy scheme could provide up 10% of the purchase price ( Subject to an upper limit of €30,000) through a tax rebate, if you are buying or building a new home ( Help to buy scheme).
This is a great incentive as long as you do not finish overpaying for a new house, where the extra demand created by the scheme has resulted in unrealistic prices. If you have not registered for the scheme, you should do so.
One impact of the scheme has been a reduction in second hand prices, especially in areas where new houses are being built.
Once you have your deposit organised you can then talk to us about getting a mortgage. Our free mortgage arrangement service ensures you get the best advice in regard to which mortgage to choose.
We have set out below comments which we hope you find helpful in understanding what lenders are looking for when seeking to approve a mortgage facility.
1. Look after the pennies when saving for a mortgage
- Steady build up of Savings
- History of regular Rent payments
- Strong current accounts .
- Overdraft facilities whilst acceptable will not help an application
- A minimum of personal borrowing clearly helps an application .Short term borrowings may significantly limit your maximum mortgage facility level.
- You must be seen to operate reasonable spending habits ( Yes, lenders look closely at how you spend your money)
2. Employment must be secure
- Lenders preference is for permanent positions as your income source.
- Contracts of indefinite duration with State bodies are also considered secure.
- In non state bodies some long term contract type positions may satisfy lenders if it can be established that the contract will continue well into the future and there is strong demand for your skills
Other factors which underwriters consider include:
- Length of current employment
- The sector in which you are employed? Is it especially exposed in recession?
- Is your job construction related? Construction activity whilst improving stills raises questions about the consistency potential of earnings going forward.
In assessing a mortgage we look at your net income.
Lender have a range of rules to apply to the maximum amount of your net income that will be allowed for debt repayments.
a. How much of your net income do you want to spend on your mortgage? Unless you are on very high income we believe that 40% is enough!
You need take time to consider this question.
b. How much do you spend per month
Lenders estimate that a single person will need approximately €1,300 to live on each month. The estimate for a couple is €2,100 per month. Each child will add approximately €250 per month.
When calculating how much you can afford underwriters will broadly assume that you will need this level of funding to live.Therefore they will not give you a mortgage which, if rates go up, has the potential ti impact on your basic living requirements
We have set out below a typical spending profile.
This may not reflect your spending but it is based on a typical selection of individuals.It may be that you spend well less than the norm and lenders will consider this.
Food and household goods €300
Light and heat €50
Phone and TV and internet €100
Medical /pharma €100
4. Credit history
- · Do you have loans? Have they been maintained up to date?
- · Have you a clean credit history?
- · Do you have large credit card balances?
5 .Life style issues
Lenders look closely at your current account statements
- · Are you overspending on luxuries such as eating out to often?
- · Other imprudent spending such as on line gambling act as a red flag to lenders
- · Have you money left over at the end of each month?
- · How would the accounts look if a monthly mortgage was applied
Gifts for deposits
Very often parental gifts form part of the deposit. Lenders still like to see some element of savings typically in the region of 50%.
Hopefully this gives you a good feel for what are the basic lending criteria.They are not written in stone but there must be no doubt that you can afford the repayments.
It may well be that you do not qualify at the moment. Perhaps your savings are not adequate or you are on probation. Even so it won't be long before you will be ready, so please keep careful control of your finances in the run up to an application at a later date.