When do I start?
Financial advisers will tell you it is never too early to start the preparation process.
Joey Sheahan, Head of Credit at MyMortgages.ie, said in an ideal world you should begin the process six months before you approach a lender and at the very least three months in advance.
“Anyone who thinks they might be in a position to take their first steps onto the property ladder should get their finances in order straight away.
“Before a lender will give any consideration to a mortgage application, they will look at the applicant’s recent banking history and their credit history,” Mr Sheahan said.
How do I prepare?
During this six-month preparation period there are a number of steps you can take to get your finances in order, and a number of things you should avoid doing that could damage your chances of getting approval.
Ross Connolly, Mortgage Adviser at Orca Homeloans, advised prospective buyers to meet a broker during this period.
He said: “Having worked in a high street bank, I would always recommend dealing with a broker who has agencies with the various lenders in the country.
“This will allow the broker to prepare one file that can be delivered to each lender as and when the need arises, avoiding duplication of paperwork as there is a substantial amount of paperwork needed for a mortgage application.”
Mr Connolly said that property prices and loan amounts should be discussed with a broker at an early stage.
“Some applicants have an idea of where they would like to buy or how much they would like to borrow and we can work out a savings plan which would enable them to demonstrate the ability to make the repayment.
“This will give the applicant an idea of what they need to show as outgoings such as rent, savings etc every month. If they do not have an idea of what they’re looking for we can discuss all options,” he added.
It can be easy to get carried away when searching for your dream home, but managing expectations is a must, according to Mr Sheahan.
He advised people to take a realistic approach when it comes to what they can afford and to familiarise themselves with the current rules.
Under the Central Bank rules, borrowers are restricted to loans of no more than 3.5 times their gross annual income.
There are exemptions in certain cases, but Mr Sheahan said it is best not to depend on this.
Under the rules, a 10% deposit is required for first-time buyers.
A tax rebate of 5% of the purchase price on new houses, apartments and self builds is potentially available on properties costing €500,000 or less, under the help to buy scheme for first-time buyers.
How do I show repayment ability?
Lenders will be looking at ways in which potential clients can demonstrate their ability to repay a mortgage. According to Mr Sheahan of MyMortgages.ie, this can be done in a number of ways.
“The ability to pay rent is one way you can demonstrate this, but you must ensure it is paid through your bank account. A bank will not accept rental payment as proven repayment ability unless it is evidenced on your bank statement, so you should definitely not pay rent in cash,” he stressed.
In a situation where you transfer money to a housemate who pays the rent, Mr Sheahan said you should label clearly on your standing order that this money is a rental payment.
“Ultimately what a lender is looking for is a capacity to repay any loan and a propensity to do so,” he added.
For those who are living at home and are not paying rent, Mr Sheahan said they should be placing a similar amount of money into a savings account every month.
This would be a second way to demonstrate repayment ability, he said.
“Transfer your savings into one account and save a regular amount each month. Do not make any withdrawals from this dedicated savings account.
“It is better to save smaller amounts, than be in a situation where you need to dip into savings. This is not something a lender wants to see,” he said.
Mr Connolly echoed this point and highlighted that some lenders offer incentives to those who set up a monthly payment to a specific account.
What could damage my chances of getting a mortgage?
There are a number ways you can inadvertently reduce your chances of getting mortgage approval and according to the experts a few simple adjustments to your spending habits could be the solution.
“The idea is to present an application to the lender which demonstrates that the applicant has a strong understanding of their finances,” said Mr Connolly.
So what could go against you?
“Needless to say, gambling transactions are not looked at as a positive,” said Mr Connolly.
Online gambling is on the rise and for many websites and apps, bets will appear on your bank statements.
Mr Sheahan also warned against this practice, referring to online gambling as a real “no no”.
“If you want to place a bet, do it using cash. But do not have any trace of online gambling on your bank statements.
“I have seen people who have been refused mortgages because of their regular pattern of placing bets online, even for quite small amounts, €5 or €10 in some cases. Just don’t do it,” he said.
Overdraft and missed repayments
Another warning sign for lenders is the use of an overdraft facility, according to Mr Connolly of Orca Homeloans, who advised against using this facility even if approved.
He also warned against missed repayments.
“Missed repayments on any direct debits, loan repayments, general outgoings or referral fees on any accounts the applicants have, does not look good.
“We would advise to stay out of any overdraft facility in place if possible and ensure all direct debits are met,” he added.
How important is my employment status?
According to Mr Sheahan, being in permanent employment is often a plus, but he said applicants will be reviewed on a case-by-case basis.
He advised that those who are self-employed must ensure that all of their accounts are fully up to date and that all relevant returns are filed with Revenue.
For contract workers, he said it was a good idea to include a copy of your CV, as well as your last three p60s.
Mr Connolly raised an issue that could effect those switching jobs.
“If starting a new job or thinking of changing employment, the lenders will not lend to an employee if there’s a probation period in their contract. Once the probation has passed there should be no issue,” he said.
What documentation will I need for my application?
When you are ready to apply for your first mortgage, you will be required to present a number of documents to your lender.