First-time buyers – Some Tips
Being a first-time buyer and actively looking to buy a home can be daunting. Some people are natural savers and have good habits with money and the rest of us have varying levels of discipline with our money which can hinder ourselves when making a mortgage application.
Here is a list of 11 tips that first-time buyers should be aware of before applying for a mortgage.
If you only find out about them after you make your application it could set you back and delay the process of being in a position to get a mortgage.
1 Have a permanent job, be finished probation and ideally working continuously for two years
This is a good rule of thumb. Ability to repay is the key consideration with lenders, and the way they determine this is by seeing an income history that is likely to continue. A loan is only underwritten once, at the start, so the lender knows that taking a chance early on means taking a bigger risk down the road (something we no reminding of).
A good work history and what you do with your money during that time represent the first and biggest hurdle a prospective borrower faces, which leads to the second point.
2 Start a saving plan
Even if you are getting help with the deposit, you have to show the capacity to save. A mortgage is a type of ‘forced savings’ which a person might not otherwise do if they were not in debt. Ideally, you need to show that you are able to put aside the amount that your mortgage will cost.
So if you are searching for a home which would cost, say, €1,200 a month to finance, you should aim to show the ability to repay that loan by saving that amount beforehand. This is a sure-fire method for starting off on the right foot. You’ll also want to ensure you don’t have ‘repayment killers’, such as other debts.
3 Have no loans or rolling credit card debts
Any existing loan facility will come off your disposable income for mortgage calculation purposes, so clear loans where possible. In particular, don’t have any rolling debt, such as credit cards.
Lenders know that overall debt is a huge portion of their existing mortgage problem, so any propensity to have debts like these (bearing in mind that credit cards are among the most expensive) is a no-no.
Taking on a huge debt like a mortgage is hard enough without additional reduction in disposable income due to short-term loans and credit cards. 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 children
This is because loan underwriters deduct chunks from 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, as raising children is expensive. But, from a behavioural point of view, providing those children with a long-term home is perhaps a good thing. While the parents’ intention is good, the banks are hesitant to lend.
5 If you are renting privately or living with relatives, pay by standing order
This is important, because it gives a traceable account of how money is used. Some people take out €500 cash every two weeks as rent but, if it isn’t fully auditable, then it may not be believed. 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 form of short-term credit. ‘Good accounts’ means 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 every month, 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 means a decline.
8 Be from the EU or have a ‘stamp 4’ visa
This has to do with residency rights. If you can’t satisfy either, forget about applying for a mortgage.
9 If you are self-employed, have updated accounts and tax returns
The actual figure taken is often not your accounts, but your tax statement. The bottom line figure for lenders is the average income declared to Revenue for the last two years, so make sure to show as much income as possible, and not write off too much in expenses.
10 Don’t gamble online
This has been used as a reason for refusing otherwise perfect credit applications.
11 Don’t make extravagant purchases in the six to 12 months before applying for a mortgage
Again, we’re not telling you how to live, but if you want to get a mortgage, then wait for the trip of a lifetime until after you have your house keys.