A First Time Buyers’ Guide To Mortgages: Step By Step
Welcome to the Mortgage123 First Time Buyers’ Guide to Mortgages. With the mountain of information floating around on first time buyers, it can be difficult to wrap your head around the subject.
Find it confusing? That’s why we have have created a First Time Buyers’ Guide to Mortgages to help and answer any questions you may have on your mortgage journey.
Continue reading to find out the step by step processes involved in getting a mortgage in Ireland, the current housing schemes available, and how you can get financially fit to save your 10% deposit.
Who is a First Time Buyer?
- Someone who has never taken out a mortgage loan either in Ireland or abroad, or has been divorced or bankrupt and does not have interest in the previous property.
- Does not own a principle private residence (PPR) in Ireland or abroad.
- Will occupy the purchased property as his/her principal private residence (PPR).
- Both applicants are FTBs.
Most Irish lenders follow the Central Bank of Ireland‘s definition of a first time buyer.
The Central Bank of Ireland states:
‘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.’ Since January 2023 the ‘fresh start’ perspective was added to the definition.*
*Since the latest Mortgage Measures Framework Overview in late 2022, two additions were made to the FTB category.
Divorced/Bankrupt Individuals
– 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.
What if I was gifted/inherited a property?
If you have been gifted or inherited a property, you will not lose your FTB status and that includes for the purposes of the Help to Buy Scheme.
Note: It is important to note that the property purchased has to be occupied by the purchaser as his/her principal private residence (PPR). Hence, if you already own a home which is your PPR, you will not be considered a first time buyer.
Simply put, a first time buyer is a person who does not own a principle private residence and has never taken out a mortgage for a property before (except if they qualify under the ‘fresh start’ perspective). In the case of a joint application, both parties must be first time buyers to be eligible for a first time buyer mortgage.
Mortgage Rates
There are two main types of mortgage rates in the Irish market, a fixed mortgage rate and a variable mortgage rate.
- Variable Rate – Rates are set by lenders based on various factors, such as ECB rates, cost of loans, loan risks or market competition. Your mortgage repayments can go up or down during the term of your loan. If you are on a variable rate, you can search for a better rate and even a cash back. Normally, with variable rates, you don’t have something called a breakage fee. This is a fee that lenders sometimes charge when you leave them to go to a new lender.
- Fixed Rate – Interest rates and monthly repayments are fixed for a set time, from 2 to 30 years. Fixed rates are a popular choice in 2022 with the rising inflation. During a fixed rate period, lenders normally charge a breakage fee if you want to switch to a new lender. If you are in a fixed rate, always ask for a breakage fee statement before considering to switch. Even if a lender sells your loan to another lender, as recently announced by both KBC and Ulster Bank, your fixed rate remains in place. At the end of a fixed rate, you have three options – go on the variable rate of your current lender, pick a new fixed rate if available, or move to a new lender (called switching).
Housing Schemes Available to First Time Buyers
Affordable Housing/Shared Equity Scheme
Home Improvement Grants and Schemes
Steps to Getting Your Dream Home
There are a number of steps to getting your mortgage approval, purchasing a home and finally, moving in. You can do this on your own, or you can do the wise thing and get an experienced mortgage broker. Reasons to use a mortgage broker.
Step 1. Save, Research and Know Your Credit Score
Before you set out on your mortgage journey, it is important to do your homework. Knowledge and preparation are key to getting you financially ready for a mortgage! We include here some useful tips to start you off.
- Try set up a budget plan as soon as you can, as you will need 10% of the total property value and an estimated five thousand extra to cover legal fees and stamp duty, etc.
- When saving, don’t make large once off deposits. It is best to save a regular amount and ringfence your savings.
- Avoid taking money out of your savings account as any money debited will be deducted from your repayment capacity (this is a key area lenders use when deciding to give you a loan or not).
- If you find yourself constantly out of pocket by the end of the month, then maybe consider creating a Credit Union or a Revolute savings account. Your money will be less accessible there.
- Paying off loans can also help. However, consult your broker before doing this. You may not have to clear the loans until the mortgage draws down.
- Avoid going into the red in your bank account. You can get a mortgage with an overdraft; however, it is difficult if you go in the red without an overdraft.
- The 10% is needed just before you purchase your home. So you can still keep saving while you are looking for a home and going through the buying process.
- Information is key! Find a good broker who will know market trends and find you the best lender and rates to suit your personal circumstances.
- Currently, we would advise to get a fixed long term rate rather than a variable rate due to inflation and the likely rise in mortgage rates.
- It is important to have a good credit rating to increase your chances of getting mortgage approval. You can also check your credit history which could be useful to give you an idea of how financially fit you are. It will also highlight any red flags that lenders will question later.
Step 2. Get an Approval in Principle (AIP)
An Approval in Principle (AIP), is a letter that you receive from a lender which shows the amount they could lend you (they are normally valid for six months from date of issue), based on some initial checks. It’s free to get an AIP and it is valid for six months. To get mortgage approval, you will need certain documents and statements such as:
Bank Statements – From the last 6 months and dated within the last 2 weeks.
Your Credit History – Last 3 months Credit Card Statements, a Statement of earnings (Accessed via revenue) or last 12-month Loan Account Statements. (If any)
Proof of Identify – Copy of Passport or Drivers Licence (If Driving Licence, front and back. Please ensure Passport is signed).
Proof of Your Income – Last 3 months Pay slips or Salary Cert. (Completed by employer or a statement of earnings if public sector), Employment Detail Summary (available through revenue, MyAccount)
Note:
Mortgage protection – start setting this up as soon as possible.
Your broker will put life cover in place to protect the mortgage. Mortgage protection is a requirement and the basic protection of your mortgage.
However, you may wish to explore income protection in the event that you can’t work as you will still need to make the mortgage repayments.
A good broker will talk you through the options and shop around for the best provider and value.
Step 2. Search The Market for a Property
When looking for a property, make sure it will fit your needs. Remember – get your mortgage approval in place as you will then have a budget to work from.
If you are planning to start a family, then a one bedroom apartment may not be suitable. It is also important to take note of the neighborhood, aspect, noise levels, nearby schools, local amenities and transport facilities. Perhaps, take a drive or walk around the property at different times of the day to get a feel for the location.
It is also be useful to use a property checklist.
Step 3. Make Sure the Property is Mortgageable & Suitable
A good mortgage broker will help you ensure the property is mortgageable. Always get a property link to forward to your broker.
- Valuation
Once you find a property and have an offer accepted, we will arrange a valuation. The valuation will be carried out by an independent valuer to establish that the price you are paying is correct and that the property is in a good state of repair. A valuation report is valid for 4 months from date of inspection.
- Engineers Report
If there are issues that the valuer thinks need further investigation, then the valuer will ask for an inspection from an engineer. In most cases, if the property is in good order, no engineer’s report will be required.
Some people do however decide to have an engineer look at a property for their own peace of mind. Especially, if the property is old, a good broker should be able to give you their opinion as to whether they think a report is needed or not.
- Solicitor
Their job is to make sure the property you are buying is planning compliant. Furthermore, they will ensure that the correct security will be in place for both you and the lender.
Furthermore, the solicitor will confirm that the person selling the property is allowed to sell it, and that it can be put in your name. The solicitor does this by way of a contract of sale which they receive from the seller’s solicitor.
Step 4. Bid & Pay Your Booking Deposit to The Auctioneer
Once you have your bid accepted by the auctioneer, you can proceed to pay your booking deposit to the auctioneer. When buying a house, booking deposits vary but are normally in the range of €5,000 to €10,000.
Make sure you confirm that this deposit is refundable and obtain a receipt. You will need to produce this receipt to the lender to show where some of your savings have gone. This booking deposit will also count towards the final deposit you are putting into your home.
Step 5. Getting Your Mortgage Offer
After the Valuation, you will receive your mortgage offer. This is a very important document as it is a contract between you and the lender. The mortgage offer spells out the terms and condition of your loan which once agreed on is set in stone as long as you keep up your payments. Your mortgage offer is valid for 6 months from date of issue.
Your solicitor will read through your offer with you to make sure it is correct. Once the contract of sale is accepted by your solicitor, they will invite you to go over the contract and mortgage offer.
All going well, you will sign the contract and offer. At that point, your solicitor will ask you for the balance of your deposit. Once you sign the offer and give the deposit, you are almost there and the transaction becomes legally binding.
Step 6. Moving In
You should be ready to move in in about 2 to 4 weeks after signing the contract. If you don’t have a car to move your belongings perhaps ask a friend or else try hire a van for a few hours rather than get a moving company which can be expensive.
To ensure the smoothest move, it is a good idea to research moving tips and ticks.
At Mortgage123, our expert advisors can guide you through the process of getting your first home. Take the stress out of your mortgage by contacting us today.
