The 11 tips to help you buy your first home
ATTEMPTING to buy your first home is a daunting task. Some people find it a painless, but others have personal circumstances that stack the odds against them.
And they may not be even aware of these hiccups, according to Karl Deeter of Irish Mortgage Brokers.
He has put together 11 tips for first-time buyers.
These are things potential buyers should do before applying for a mortgage. If you only find out about these things after you make your application (and if it results in a rejection) then it could set you back months, if not years.
1 Be in a permanent job
You should be finished probation and ideally working continuously for two years.
This is a good rule of thumb because an ability to repay is the key consideration with lenders.
The way they determine this is by seeing an income history that has a likelihood of continuing.
A loan is only underwritten once, at origination, so the lender knows that taking a chance early on means taking a bigger chance down the road (something we are continuously reminded of as we deal with our banking and mortgage crisis).
A good work history and what you do with your money during that time are the first and largest hurdle a prospective borrower faces, which leads to the second point.
2 Have savings
Even if you are getting help with the deposit you have to show the capacity to save.
Mr Deeter says buyers should think about a mortgage as a type of "forced savings" which a person might not otherwise do if they were not in debt.
Demonstrating an ability to save is vital. Ideally you will be able to show that you are capable of putting aside the same amount of money that your mortgage will cost.
So if you are searching for homes where financing them would cost say €1,200 a month, then you should aim to show a proven ability to repay that loan by saving that amount before undertaking it.
This is a sure-fire method for starting off on the right foot, Mr Deeter says.
At the same time, you will want to ensure you don't have "repayment killers" which are other debts.
3 Have no loans or rolling credit card debts
Any existing loan facility will come off your disposable income for mortgage calculation purposes.
So, clear loans where possible. In particular, don't carry any rolling debt like credit cards.
Lenders know that overall debt is a huge portion of their existing mortgage problem and any propensity to carry debts like these (bearing in mind credit cards are among the most expensive) is a no-no, the mortgage expert said.
Taking on a huge debt like a mortgage is hard enough without the added reduction in disposable income that short-term loans and credit cards represent. So, the advise is to start with the cleanest bill of financial health you can, and that means savings and no debts.
4 Try to buy before you have kids
With renters increasing 47pc between the last two Census returns, it shows that people are not abandoning household formation.
They just are not doing it in conjunction with buying houses.
What we have seen in 2012 was a "child barrier" to lending, where people who have children are finding it exceedingly difficult to buy a home.
This is because loan underwriters whack chunks off of your available disposable income (whether you spend it or not, it's just part of the calculation) if you have children, according to Mr Deeter.
This makes sense from a logical point of view, as raising children is expensive. But from a behavioural point of view, providing those children with a long-term home is perhaps a good thing.
While the intention is good on behalf of the parents, the banks are hesitant to lend.
If we were to talk about a trend in credit refusals the definite winner in 2012 was one-income families with children.
Mr Deeter said he found those loans nigh impossible to place.
5 Pay rent by standing order
This is important because it gives traceable account of how money is used.
Sometimes people say: "I take out €500 cash every two weeks as rent."
That doesn't matter. If it isn't fully auditable then it isn't fully believed. So make it easy for the lender to see where your money goes and when.
6 Maintain good current accounts and stay out of your overdraft
Overdrafts are a short-term credit.
Good accounts mean no referral fees, and not being at a near zero balance at the end of the month.
If you always end up in your overdraft each month, your odds of getting a mortgage diminish rapidly, Mr Deeter said.
7 Have a clean credit record
Never miss a car loan, personal or credit card payment. A single blip on your credit equals a decline, plain and simple, he added.
8 Be from the EU and if not have a stamp for visa
This has to do with residency rights. If you can't satisfy either then forget about applying.
9 If you are self-employed, make sure to have updated accounts and tax returns
The actual figure taken is often not your accounts, but your tax statement.
The bottom line figure for the lenders is the average income declared to Revenue for the last two years.
So, make sure to show as much income as possible and not write too much off in expenses, Mr Deeter said.
The banks believe the tax man more than the accountant.
10 Don't gamble online
While we are agnostic about gambling, banks are not.
We have seen this used as a reason for refusing otherwise perfect credit applications.
11 Don't make extravagant purchases before applying
Avoid big expenses in the six to 12 months before you apply for the home loan.
Mr Deeter said banks were not dictating how you should live but if you want to get a mortgage then save the trip of a lifetime until after you have your house keys.