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House-sharing has lost its attraction and you are at a stage in your life where you are desperate for a home to call your own. Do you have what it takes to apply for a mortgage and buy your own house? I’ve teamed up with Liberty Insurance Ireland to look at the steps involved in buying a home in Ireland.
When you begin thinking about buying a house, its wise draw up a budget to get your finances in order. Tracking your spending and putting money aside, months or years in advance, for a deposit is essential in applying for a mortgage. Aside from a deposit, there are also other expenses related to buying a new house, that you will need to consider when saving. These may include:
- Quantity surveyor (if it’s an old house)
- Mortgage protection
- Home insurance
- Lending agency fee
- Stamp duty
Gone are the days of the 100% mortgage, now those applying for a mortgage need to save money for their deposit. The Central Bank introduced two limits (in 2017 and is reviewed annually) to ensure that house buyers don’t borrow more than they can afford to repay and this also serves to safeguard the Irish financial system.
Loan-to-value (LTV) limits:
Since 1 January 2017: For first-time buyers of principal dwelling homes, the limit of 90% LTV applies on the full value of all residential property. Therefore, first-time buyers will need a deposit of 10% for any house or apartment, whatever the cost.
For non-first-time home-buyers, there is a limit of 80% of LTV on new mortgage lending, whatever the price of the property, so they will need a deposit of 20% of the total purchase price.
A limit of 3.5 times your gross annual income applies to applications for a mortgage for a principal dwelling home. This limit also applies to those in negative equity applying for a mortgage for a new property, but not those borrowing for a buy-to-let property.
An income tax rebate, the Help-to-Buy (HTB) incentive, aims to help first-time buyers of newly built homes to meet the deposit required. It also applies to once-off self-build homes. It consists of a rebate of income tax paid over the previous 4 years. But get in there quick, it only runs until the end of 2021. If the house you wish to buy isn’t a new build, you may be entitled to claim First Time Buyers’ Relief, if you are a first-time buyer.
Current account activity
Any lending agency that you approach regarding a mortgage, will request bank statements for at least the previous six months. Make sure you can explain any large withdrawals or unusual activity. If you have an overdraft limit, try not to use it in this six-month period. If possible, restrict your use of your credit card altogether or at least clear the balance in full every month. An outstanding credit card balance will be treated like a short term loan and will restrict the amount you can borrow.
Speak to lenders/brokers
The next step is to approach lenders and ask about their rates and what they can offer. Along with examining your bank statements to learn your money management habits, there are other areas that they consider also before granting mortgage approval:
- Overall income: lenders will look at your annual income and some may also take bonuses, overtime and rental income into account.
- Employment status: are you in permanent employment, on probation, self-employed or on a rolling contract? Evidence of job security is a major role in securing a mortgage.
- Repayments: work out how much you can repay monthly and be prepared to show how the lenders how you intend to do this. This is where your budget will come in handy.
- Outstanding loans: other loans or a high credit card balance may reduce or inhibit your chances of getting a mortgage.
- Outgoings: lenders will enquire about any other financial commitments you may have, such as childcare, school fees etc.
- Saving: lenders will require a deposit and will also be interested in seeing that you can put money aside consistently.
- Age: this will be of interest to mortgage providers, because they will need to know when you will stop earning and how old you will be when the mortgage ends.
- Residential status: are you a resident in Ireland?
- Credit history: this shows your track record of paying other loans in the past and it can impact your ability to get a mortgage. If you wish to check your credit history, click on the link below:
Compare their offers and rates
Don’t accept the first offer, shop around and don’t let anyone rush you into making a decision. Lenders give ‘approval in principal’ which is a statement of how much they are prepared to lend you. This will give you a guide as to what price bracket you need to stay in while house hunting. A ‘letter of offer’ is what you will receive when your mortgage has been fully approved. Check how long the offer is valid for.
Choosing mortgage provider
You have whittled down your offers and chosen the lender that best seems to suit your needs. Under the European Union Consumer Mortgage Credit Agreements Regulations 2016, the lender must provide you with a European Standardised Information Sheet (ESIS), setting out the details of the mortgage offer. The ESIS must contain the following information:
- The length of time the offer is valid
- Contact details of the mortgage provider
- Main features of the loan which includes potential risks
- Type and duration of credit
- Full details of borrowing rate(s) and when and how they may be revised, if applicable
- Total amount that you will pay over the lifetime of the mortgage
You will need to hire a solicitor to do the conveyancing. Conveyancing is the legal work involved in buying or selling property. Conveyancing fees can vary, so it’s advisable to ask for quotes from reputable solicitors and compare prices.
Your lender will expect you to get mortgage protection as a condition of the loan. This is a type of life insurance policy that pays off your mortgage if you die before the mortgage is paid off in full.
Look at houses
Armed with your mortgage approval, you can now seriously look at what houses are available within your price range. Don’t be tempted to dip into your savings to supplement your mortgage in order to buy a more expensive home. Remember you still have those additional costs we mentioned above, not to mention the need for an emergency fund to cover the cost of a new boiler for example or other essential repairs. View a few houses and ask questions about the property. If you are unsure what to ask, the Competition and Consumer Protection Commission (CPCC) have a couple of checklists to steer you in the right direction:
Make an offer
When you find a house that ticks all the boxes it’s time to make an offer. Decide on your limit and don’t exceed it. Then, patiently sit and wait.
If your offer was successful and the house goes sale agreed, the estate agent forwards the relevant details of the sale to you, your solicitor, the seller’s solicitor and your mortgage provider. This should include everyone’s contact information, the price that you agreed on and a provisional date for closing.
Once a price has been agreed, advise your lender as they will want to value the property to ensure that it’s worth the asking price.
Before the sale is closed, it’s wise to hire a surveyor to check for structural flaws that might not be obvious to you.
Next on your list is shopping for home insurance. You will need the following details of the property you wish to insure:
- rebuild value – this refers to the amount it would cost to completely rebuild your home if it was destroyed beyond repair. This includes any fittings, extensions, outhouses etc. If you are unsure how to calculate this, the Society of Chartered Surveyors Ireland has a handy tool to help, click here https://www.scsi.ie/advice/renewing_your_house_insurance_rebuild_calculator.
- type of building
- when it was built
- how many bedrooms it has
- how many smoke detectors are fitted
- if any of the roof is flat
- You’ll also need to provide information about the area around the property, including any history of subsidence or flooding.
- If you’re insuring your contents, you’ll need to know the value of the contents, and details of any items you would like to specifically name in the policy, and any high value items (individual items valued at over €3,000)
Contact Liberty Insurance for an affordable home insurance quote that won’t break the bank and will put your mind at ease. Acceptance criteria, terms and conditions apply.
Once all the conditions have been met, your lender will approve your mortgage for the property and the amount agreed, and will send you a formal ‘letter of offer’. If you agree with all the details, you formally accept the letter of offer from your lender, through your solicitor.
When your solicitor has checked the contract for sale from the estate agent, you will sign it and pay the agreed deposit. Once the seller has also signed the paperwork, it becomes a binding contract.
Your solicitor will return the loan acceptance and other necessary documents to your mortgage provider. He/She will organise the final details to get the purchase deed for your new home, making you a proud homeowner!
Applying for a mortgage and buying a house is a long term commitment, so it’s important to do your research and not rush into something you may regret. Happy house-hunting!