In this series of FAQs, I’m going to walk you through the roadmap to buying a property in Ireland, from the very start to the point where you’re handed the keys to your own home.
In a five-part series, I’ll cover five of the common topics and questions I get, including:
1. How much you can borrow.
2. How much money do you need to have and put down?
3. What you need to do to get an approval from the bank.
4. Finding the right home, and
5. Closing the mortgage and paying for your home.
Roadmap to Buying Your Home – Part 1: How much can you borrow?
The banks will determine how much money you can borrow for your mortgage based on your income.
But the Central Bank mandates that banks cap how much they lend (exceptions not withstanding) at 3.5-times your income.
It’s important to note that each bank may have slightly different standards, policies, and ways of measuring income.
But, in general, they judge your:
• Look at your income coming from commissions, shift, etc., although they may not give the same allowance as basic income
• Income for self-employed borrowers is treated differently, as well, by different banks, most likely calculated based on net profit, not having frequent turnover, and a certain number of years on the job.
While these are the bank standards for mortgages, Exceptions may be possible, granting extra funds or special conditions based on circumstances. It’s important to note that Exceptions are not guaranteed or even predictable, and can vary greatly based on a host of factors, including: • Your age,
• Your income,
• If you have kids (and if so, how many/what ages, etc.),
• And even the time of year can come into play as the bank’s consider mortgage Exceptions. If the bank does grant an exception, they may lend 4 to 4 ½-times your regular income.
So we’ve consulted and organized your paperwork, and now we know how much money the bank will lend you for a mortgage. The next step is about how much money you will need to put down for a down payment for your property purchase.
This, too, is determined by the Central Bank, which mandates that first-time buyers cannot receive more than 90 percent financing.
Therefore, they’ll have to put 10 percent down as an initial payment. Of course, if we have a €300,000 property, that equates to €30,000. But you will need more money than that put away, since there are other affiliated fees and costs when buying a home.
For instance, you will need to pay the stamp duty, legal fees, a survey for a second-hand property (around €500-1,000), and the valuation (around €150). And don’t forget the need for furniture, home goods, and moving costs, which can really add up!
All told, I anticipate that with putting 10 percent down on a €300,000 property, you may need €33,000-34,000 total.
Remember that those deposit funds can come from:
1. Your savings
2. The Help-to-Buy Scheme if it’s a new property
3. Gift funds from family members
After all, before we can purchase a property and move in, we need to get the bank to agree to lend us the money!
It’s also to start this process well ahead of time before you go looking for a home.
Actually, it’s essential that you secure the mortgage before you go house hunting because real estate agents won’t even engage or help you unless you’ve had secured your mortgage.
So, we should start the mortgage process at least 4-6 weeks earlier. And remember that once granted, the mortgage approval will last for six months so you’ll have plenty of time to find a property!
What does the bank look at when they consider a mortgage application?
1. Income (we covered this in depth in the previous video)
2. Showing the bank that you can meet the repayments This is a big one, and the banks will look for proof that you can repay the new mortgage based on your:
-Monthly savings (they want to see that they are consistent)
-Rent can be seen going out of bank account
-Loans that you may be paying that will be gone
3. Banks will look at the profile of borrower Basically, does it make common sense (and good business!) to issue a mortgage to this applicant? To judge that, they don’t want to see any evidence of gambling, missed direct debits, people living in their overdraft, etc. If you have missed payments or loans in your past, it will create big problems during the mortgage process. The banks will look at Icb.ie and the Central Bank credit register, so it’s best that we check now. *
Now that you’ve been approved by the banks, remember that you have six months to find a purchase a property. During that time as you’re looking for the right house, be sure to maintain the same behaviors in terms of your finances, banking, and spending.
Likewise, keep your paperwork organized and updated. You’ll also want to keep up on new developments with the local real estate market and keep in touch with any real estate agents who are helping you.
Why is it so important to be proactive and organized? It was just reported that over the last year, there were 42,000 mortgage approvals by the banks. However, there were only 15,000 new properties available for first-time buyers, so obviously there’s a huge pent-up demand.
I’d also like to help you with the questions you should be asking when you do see a property. For instance, inquire if there are any new developments in the area that you should be aware of that may impact the value of the potential new home. And if you’re buying a second-hand home, it can be a trickier proposition since you’re competing with so many other buyers. Count on bidding to ensue and do your research into prices.
There are two websites I like for that price research, the PropertyPriceRegister.ie website, which has a great summary of selling prices over the last 3-4 months. I also like websites like myhome.ie or your real estate agent may have a useful website.
When it comes to bidding and strategies to compete with other buyers, I have a lot of suggestions and advice for you, and it’s also important to know what questions to ask agents when you see a property.
So, I welcome you to contact me any time to chat about how you can find the right home!
Congratulations on finding your home, having your offer accepted, and getting your loan approved by the bank!
Now you’ll have some critical decisions to make on the journey to the most important step of all – actually paying your mortgage.
Of course, you want to choose a mortgage that offers payments that are feasible for you to make and still live your life but will also pay down the mortgage efficiently. The most important part to remember is that you’re not just paying back the amount you borrowed to fund the property purchase, but to pay the mortgage interest as well.
So, understanding how much you’re paying in interest and having strategizes to reduce the total interest as much as possible are key.
That being said, I’d like to discuss the types of rates you will find:
With a variable rate, the rate and payment can go up or down based on the marketplace and other factors like rates in Europe, the banks etc. A variable rate saves you money but comes with risk. It’s best to use if you anticipate that rates will fall, you will make more money, want to pay off the loan in one sum, or just want flexibility. However, it does come with risk since you’re at the mercy of the banks and the market so your payment could go up any moment. But you can choose to fix a variable rate at any time.
Fixed loans offer more safety and security since your rate – and therefore payment – are fixed or locked in for a certain amount of time. The borrower can usually choose a period of 1, 3, 5, or 10 years, and there’s even a bank now offering 20-year fixed loans. That security comes with a drawback since it may be harder to pay extra or pay off the loan in big sums or all at once. Then, there is the question of taking a Cash Back loan.
You may want this to get hold with the down payment or even funds to buy furniture and such. The good news is that you can really analyze a cash back loan, how much you pay, etc. on some great mortgage calculator websites like the one I talk about in this video.
Remember that the whole objective is to reduce the total amount of mortgage interest, while still having a monthly payment that is feasible and reasonable to pay.
One thing to note that if you are looking at a new property, you’ll make a decision at the time of the loan offer. But, if your home takes 6-9 months to build, you’ll be able to review your loan options about 2-3 months out to see if it still the best loan for you.
As always, contact me any time if you need help or to talk about the best loan rate for you!