First Time Buyers
Let’s start the mortgage journey to your first home!
Your First Mortgage
Many people are starting to get into the housing market for the first time despite the current pandemic. However, banks are very strict in their lending practices. Therefore, knowledge of the mortgage application process is essential. The wise thing to do would be to start working with a mortgage advisor at least six months before you submit your application.
Where do you start?
First, you need to figure out how much you can borrow. The general rule-of-thumb is that you can borrow up to 3.5 times your gross annual income, or the combined gross annual income of a couple (from Jan 2023 the income limit will be up to 4 times income).
As a first-time buyer, you are required to pay a deposit of at least 10% of the property value. For example, if you are looking to buy a house worth €200,000, you will need to pay a deposit of €20,000 (10%).
But a 10% deposit is not always the case…
Help to Buy scheme is available to first time buyers in Ireland since 2014.
What does this mean? It means you can possibly get a mortgage with close to no deposit.
Check out our article on the Help to Buy Scheme for important changes that are valid until December 31st 2024.
Fixed or Variable Rate?
A fixed rate mortgage which doesn’t change for a set period of time, so you know exactly how much you pay every month. A variable rate mortgage has a rate of interest which can change. As a result your payments may vary as a result.
How does it work in practice?
First Time Buyers, Aoife and Brian
Aoife and Brian are looking to buy their first home in South County Dublin.
- Their combined gross yearly income is €80,000.
- Maximum mortgage they can get from a bank is €280,000.
- The value of the house they want to buy is €210,000.
- So they need a deposit of €21,000 (10%).
- Additional Costs €2,100 (1% stamp duty), an average of €4,000 (to cover engineer, valuation, legal, insurance fees).
- They choose a 25-year term mortgage at a 3% variable rate, so their monthly mortgage repayments are €995.84 p.m.
- They will also need to be able to show a further 2% stress repayment capacity, i.e. €1,227.64 p.m.
Top Tips for First Time Buyers
In order to get a mortgage, you have to provide proof that you can repay it. So you’ll need to provide proof of long term employment. Casual employment and job seeker allowances are not accepted as proof of employment.
Contract workers need to provide proof of three rolling contacts. If you are in receipt of bonuses or commission income, lenders will calculate an average over a period of time.
You need to eat, sleep and have fun once the mortgage is paid, so don’t over extend yourself.
First Time Buyer FAQs
A mortgage is simply a long-term loan that’s used to pay for a house.
A first time buyer is defined as a borrower to whom no housing loan has ever before been advanced. Where the borrower under a housing loan is more than one person and one or more of those persons has previously been advanced a housing loan, none of those persons is a first-time buyer.
From Jan 2023 also to include:
– From a “fresh start” perspective, borrowers who are divorced or separated or have undergone bankruptcy or insolvency may be considered FTBs for the mortgage measures (where they no longer have an interest in the previous property).
– FTBs who get a top-up loan or re-mortgage with an increase in the principal may be considered FTBs, provided the property remains their primary home.
(Central Bank of Ireland).
Central bank deposit rules require a 10% deposit for first time buyers. So if the value of your property is €200,000, you’d need a deposit of €20,000.
With a fixed rate mortgage, your interest rate and monthly repayments are fixed for a set time as agreed between the lender and borrower.
Although a fixed rate means your repayments cannot increase for a set period of time, your repayments will not fall during the fixed rate period. As a result, you could miss out on lower interest rates and lower repayments. Fixed rates may cost more over the long run but they offer peace of mind as you know your repayments will not rise during the fixed rate period.
Variable rates offer the most flexibility. They allow you to increase your repayments, use a lump sum to pay off all or part of your mortgage or re-mortgage without having to pay any fixed rate breakage fees.
However, because variable rates can rise and fall, your mortgage repayments can go up or down during the term of your loan.
Your repayments will depend on how much you borrow, the term or length of your mortgage as well as the interest rate that you’re charged.
In terms of securing a mortgage offer, there’s no hard and fast rule over the time it takes, but, in normal circumstances, most of us can expect to wait 3-4 weeks from application to mortgage offer – provided the process goes smoothly and your application is relatively straightforward.
LTV, or loan-to-value, is all about how much mortgage you have in relation to how much your property is worth. It’s normally a percentage figure that reflects the percentage of your property that is mortgaged, and the amount that is yours (the amount you own is usually called your equity).
For example, if you have a mortgage of €150,000 on a house that’s worth €200,000 you have a loan-to-value of 75% – therefore you have €50,000 as equity.
The process can be daunting so it makes sense to find a mortgage broker that can take the pressure off. A good advisor will simplify the process, gather all your information, advise you on ways to save for a deposit, know whether you should opt for a 25 or 35 year term, and most importantly, they’ll shop around for the best possible mortgage deal for you. It doesn’t cost you a cent to chat with an advisor because their fees are usually covered by the mortgage lenders.
- Assess your chances of getting a mortgage
- Recommend measures to secure mortgage approval
- Fill out your application and make sure you have everything in place
- Get a quote from each bank for you and recommend the best
- Calculate the additional tax and legal expenses involved in the purchase
- Make sure all runs smoothly and stress-free for you
Basic pay will now be taken as two points up the pay scale when applying for a mortgage. You will now be assessed with a higher wage on your application.