I get a lot of mortgage enquiries, significantly up from 2016. There are a number of reasons for this; the new government Help to Buy Incentive, and increased consumer confident in the property market. In the course of providing advice and assistance to clients wishing to engage the whole mortgage application process, a number of questions crop up with consistency. For some applicants they are good to apply straight away, for many however, they may be a few months off in terms of regular savings, clearing down short term debt and general housekeeping. So here’s a few do’s, don’t and my own attempt to dispel some of the myths surround the whole mortgage process, which can be understandably daunting for people.
- Get your bank accounts in order.
By this I mean the following; avoid going into the red, minus figures don’t look good on any bank account and won’t exactly instil confidence in a lending underwriter that you’ll be in good shape to repay your mortgage on time, every time. Referral fees do not look good either, so plan accordingly. Try to anticipate moments where your account may go into the minuses. Look back on your previous statements, is there a pattern emerging? Is there a large bill hitting your account a day before payday? Perhaps change the direct debit mandate collection day to ensure there’s always enough on account to cover your outgoings.
- Save regularly
Separate your savings from your current account. If you don’t have a savings account, get down to your bank and set one up. Lenders like to see a minimum of 6 month savings, so get consistent. When you are transferring you savings from current account to savings account, write “Savings” in the comment box.
- Pay your rent by standing order
It is very difficult to quantify and count rent that is paid in cash to your landlord. For visibility, ensure that this is paid by standing order, marked clearly as “Rent Money.” This is invaluable as it can be factored into your capacity to repay figures. Lenders consider both regular savings plus rent as proof of how much of a mortgage you’d be likely to manage to repay. For example if you are paying rent of €1,500 and also saving €1,000 per month, you are proving repayment capacity of €2,500 per month and that will stand you in good stead when your application is on the underwriters desk.
- Flag potential credit check issues now
There’s nothing worse than completing a full mortgage application and at the 11th hour, a blip on a credit card repayment pulls the whole thing down. Go to www.icb.ie and order your own credit report. Be sure to include every address you’ve ever lived at also, to ensure all historical loans are brought up. It costs €6 and they post the report to you within 5 days. This can highlight any potential banana skins, most lenders insist on a full clean credit history, occasionally there are workarounds but this must be flagged very early to establish which lender might still be in a position to do business with you.
- Don’t take out a huge car loan if looking for a mortgage
Hold off on that shiny new car, old Betsy is going to have to do you for a few more months at least. If you have a large loan commitment, it affects your capacity to repay on the lenders affordability calculators and can scupper your attempts to secure finance. So prioritise, what do you want more, the home or the shiny new car? Your call.
- Don’t try to over-save
Life is for living, if you are squirreling away every cent you earn, you may accumulate a large deposit, but try to balance that with enjoying life also. There is a limit to what the banks will lend you and no amount of excessive saving will override that.
- Don’t stick your head in the sand
A follow on from the do’s in relation to credit checks. Be upfront about potential issues, best to know now than later
- “Banks decline anyone with an online betting account”
Not true, a betting account with modest activity is acceptable. However, if you are lodging €200 a week to cover your Saturday football accumulators, don’t expect to be getting loan approval.
- “You must save 50% of your deposit yourself”
Not entirely true. Banks like to see that the applicant has taken steps towards building the deposit on their own, however with second time buyers needing 20%, saving this deposit without the help of a gift from parents can be very difficult.
- “I was declined by one bank, so they’ll all decline me now”
Again, untrue, lenders all carry different underwriting criteria. Just because you don’t tick the boxes with one lender does not necessarily mean you won’t for another lender. Again, this is a key advantage to using a broker with access to more than one lender.
I hope you have found this useful. Please feel free to copy to family and friends.