Part 2 – Things you NEED to know before buying your first home
Part 2 – Things you NEED to know before buying your first homeThings you NEED to know before buying your first home
This is part 2 of my blog series on “Things you NEED to know before buying your first home”. Make sure you read part 1 here for the introduction and all the extra info. Now let’s get into it straight away…
Know how much you can afford and how much you can borrow
Know how much you can afford and how much you can borrow. And know the difference between the two. Just because you can borrow a big mortgage doesn’t mean you should. Prior to doing any application you should use the calculators on the various lenders websites to determine what loan amount you may be able to obtain. Then by assessing your own budget work out what loan amount you can afford. Use websites such as the property price register to understand how much houses are selling for in the areas you are looking to buy and see how they are comparing to step 1 and step 2 above.
Future proof your budget
Calculate what your budget would be after you get a mortgage. Consider things like job security, whether or not you will have one income or two incomes in the future, the cost of any children you may have and childcare costs, potential interest rate increases and additional costs that come with buying a house such as home insurance, life assurance, bin charges, property tax and property management fees. Although you cannot predict the future, make sure that your future budget allows you sufficient room for all these costs and plenty of buffer for the unexpected.
Don’t try and game the system
This is my personal opinion but unless you are a professional investor, don’t try and game the system. Buy a house you love or can grow to love (with a little TLC), with a mortgage you can afford in a location you like. Try not to get too bogged down in speculating on market conditions and house price trends.
Consider your existing debt
Do you have other debt such as car loans or credit union loans? These loans will reduce the mortgage amount you would be approved for. Consider clearing these loans before applying for your mortgage to either free up extra money in your monthly budget or to enable you to get a bigger mortgage amount (if you can afford it).
When you are ready to apply…
When you are ready to start the application process make sure to plan a minimum of 6 months ahead and follow these top 7 tips:
Keep all of your accounts in good working order. Avoid referral fees or unauthorised overdraft positions. Make sure you can account for any large lodgements or withdrawals. Ensure there is no reckless spending or gambling transactions. This is good advice to practise at all times, but in particular for a minimum of 6 months before applying for a mortgage.
If you have a Credit Card, ensure that you are tightly managing your Credit Card use. Pay your balance in full every month. Don’t ever miss a payment or exceed your limit. Again, this is generally good advice, not just when you are applying for a mortgage but in general.
Demonstrate affordability on your bank statements by saving/paying in rent the amount that your potential mortgage payment would be. For example, if your mortgage repayment will be €1,000 per month, make sure that you can evidence your affordability for this amount by either saving this amount or paying it in rent, every month for at least 6 months before you start your mortgage application.
Run a credit check (e.g. ICB or CCR) on yourself to ensure everything is in order. If you have a poor credit history (i.e. if you have gone into arrears on other loans), this will show on your credit report and may impact your ability to borrow money for buying a house.
You should have stable employment, if you are a PAYE employee typically you will need to have successfully completed your probation period in order to be granted a mortgage and if you are self-employed you will usually need 2 years business bank account statements and a set of accounts to demonstrate the stability of your employment.
The paperwork needed will vary from bank to bank, but be as organised as possible and furnish all the requested documentation asap to ensure your application is processed as smoothly as possible. The types of documents you will typically be asked for include a salary certificate, your most recent p60, two consecutive recent pay slips, six months recent consecutive bank statements, six months recent consecutive savings statements. These requests will vary from lender to lender and you may be asked for additional documentation.
Make sure you are getting the best possible deal when you are drawing down your mortgage. See my advice on my first post about interest rates, in summary usually the lower the interest rate the better and also look at some of the cash-back offers available with certain lenders. For example, some lenders will offer 2% cash-back on drawdown, on a €350,000 mortgage, that would be €7,000 in cash!!!