A home mortgage is likely to be the biggest financial transaction in your life. As such you need to be sure that it is the best fit for your circumstances and that you get the best deal possible. From the lender’s perspective they will assess you on a number of key areas, namely:
- Your credit history
- Your savings history
- Your employment record and current income
- The purchase price relative to the amount that you wish to borrow
- The energy rating of the property
- The term of your mortgage
Many people are unaware that your own personal credit score is one of the most important things that lenders look at when they are considering approving you for a mortgage. Put simply, you need to have a good credit history. This means that you need to keep a close eye on your financial affairs as well as not taking on too much personal debt. The more confident that a lender is that you will repay your loan on time, the better interest rates they will offer you. To make sure that you have a good credit record you need to pay all your bills on time, eliminate debt and pay off your credit cards.
You can check your credit score regularly and make sure the Credit Register isn’t making any mistakes on your report which is the first personal report on your finances that a lender will seek on you. You can obtain a credit check free of charge at www.centralcreditregister.ie.
Once you have made a request your personal report will be issued automatically to you 3 or 4 days later.
Saving for a mortgage deposit can take a considerable length of time depending on your personal circumstances. Make sure that you give yourself a realistic savings time-frame that doesn’t put you under financial stress or difficulty. Your personal circumstances will determine how much you can manage to save each month for your deposit.
Start saving as far in advance as you can – don’t keep telling yourself you’ll start when you get paid next month or after Christmas or after the summer holiday! By keeping a record of your spending over the next few months you will be able to see where you could potentially make some cutbacks and then improve your savings level.
Investigate if you can make savings on direct debits and bills by using comparison websites for the likes of mobile phone, internet, bin collection or energy provider. Be sure to review your car, house and health insurance policies in particular to make sure you’re getting the best offers and discounts.
Set up a budget to include a monthly savings amount as lenders will always look for an established and consistent regular savings record. When you tot up the receipts or outgoings on your online banking app or a personal spreadsheet you might surprise yourself with just how many take away coffees you buy each month!
Employment Record and History
You need to be in secure employment and have a source of consistent income that can sustain the mortgage. It is important for you to have a strong record of employment when applying for a mortgage. Showing steady employment and earnings will greatly increase the confidence the lender has in you to make your make your future mortgage payments on time. Where applicable, you will also need to provide proof of overtime, bonuses, and commissions you have earned. Where you might have two sources of earned income both of them need to be shown as sustainable in the long term.
If your current job(s) do not have a termination date, most lenders will consider your employment permanent and ongoing. For a standard mortgage application, underwriters will look back on the last two-years’ work history. If you have been in a job for that long, no further examination should be needed. However, if you have spent less than two years in your career, your employment history will be scrutinised and gaps in employment will be questioned. Issues such as career breaks or long term foreign travel will be queried.
The purchase price of the property Vs the amount you wish to borrow:
Referred to as Loan to Value (LTV) ratio, the more you have saved towards the deposit for your new home will mean the less you will have to borrow. If you’re buying your first home, you’ll need to have saved at least 10% of the house price as a deposit and you will also need more for stamp duty and legal fees. If you already have a mortgage with a bank or other lender, you may be able to switch your mortgage to a new lender on a new lower rate resulting in lower monthly repayments. The criteria for second time buyers are remarkably like those for first time buyers. The only difference is that now you would need a larger deposit of 20% as well as being able to cover stamp duty and legal fees. If you are moving, upgrading/extending your home, and going back to the mortgage market the LTV will again determine the rate.
Energy rating of the property – Green Rating
By availing of a Green Mortgage, you will qualify for a lower rate of interest. Eligibility criteria for a green mortgage varies from lender to lender, but the property’s Building Energy Rating Certificate (BER) is typically a key factor. Homes are required to have an energy efficiency rating of 81 or above, or be in energy efficiency bands A or B. Some lenders believe that by offering green mortgages they are incentivising people to buy more energy efficient homes, which means they will use less energy and have a lower carbon footprint, which is all great for the environment. By law, all homes built since 2019 will need to be A2 rated so if your prospective new home is recently built and doesn’t have this rating you might need to investigate it further before signing a contract.
Homeowners who are improving the energy rating of their home to B3 or above can secure one of the green rates. You must provide the lender with a valid BER Cert showing that your home now has an energy rating between A1 and B3. There may be costs associated with getting the certificate, but you can refer to www.seai.ie for further information. A BER certificate is valid for 10 years.
The Term of Your Mortgage
A mortgage term is the complete lifespan of the mortgage, and the number of years you will be set to make payments to the lender until it is paid in full. With a repayment mortgage, in which the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest, the amount borrowed decreases throughout the term and by the end of the loan term has been fully repaid, provided you have met all payments. For example, if you take out a 25-year repayment mortgage in 2022 when you are aged 30, you will be mortgage-free by 2047, when you are 55 years old providing you have met all the repayments.
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