Applying for your mortgage – without the jargon
In a recent KBC survey, almost half of first time buyers said they were unclear about how the process of getting a mortgage works, while 20 per cent admitted they found mortgages difficult to understand.
Feeling overwhelmed by all the jargon? Here are five simple tips you can follow to get the ball rolling and help make the process run as smoothly as possible.
Tip 1 – How much do I need to save?
Unless you have earned a pile of cash over the past few years, then it is inevitable that you will need to get a mortgage in order to purchase your first house! Before you can borrow from a lender, you will need to contribute some of your money towards the property price – this deposit is at least 10 per cent of the total cost of the property.
“When you’re looking for a mortgage, you will need to consider how much the deposit is and how much you will need to borrow,” says Declan Naughton, Hub Manager at KBC Bank in College Green, Dublin. “KBC have a number of handy calculators online to help you work this out. Whether you have a single or joint account, you can start to think about how much you will need to have saved and how much you need to borrow.”
Tip 2 – The right mortgage for you
Depending on your personal preferences when it comes to managing money, different home loans best suit different people. One of the things you should think about is what type of interest rate is right for you.
With a fixed rate, you know exactly every month what your mortgage repayments are going to be and you can budget for that amount. With a variable rate, the interest can be changed at any time over the course of the loan. It can rise or fall, changing the amount of your loan repayments at the same time. For more information on how to manage your money effectively, see next week’s instalment on Tuesday March 1.
Tip 3 – Be prepared
There’s nothing more frustrating than turning up to your local Hub, filling out an application form and bringing with you all the necessary documents only to discover there is a vital one you have missed.
“First of all, you will need proof of identity and proof of your current address,” says Declan. “You’ll need to bring six months of bank statements and any statements to do with existing credit agreements, such as a loan or credit card, because we need to see what other commitments you have financially.
“We also ask for your savings statements because we want to see what your savings history and your savings pattern has been like. Finally, it’s important to have your employment details verified. Have an employee status form filled in by your employer to verify your income and support that with existing payslips and your P60. If you are self-employed, you will need to confirm your tax affairs are in order.”
Tip 4 – Get your Approval in Principle
Before a seller or a real estate agent will accept an offer, you will need an Approval in Principle (AIP), which is approval by a bank to confirm that you will get a loan for the amount you are seeking.
“The AIP lasts up to six months and it gives you the confidence to go searching in the housing market, knowing that we’re going to give you that money,” says Declan. “It puts you in a very strong position to be able to put forward an application for property, to work with a vendor or an estate agent.”
Tip 5 – Get some help from the experts
The mortgage process can seem daunting, but there is always help available if you are still unsure about your options.
“Make an appointment with a mortgage consultant at your local Hub as soon as you can,” says Declan. “The consultant can look at the deposit you have in place and discuss with you exactly what you can borrow over the term and also look at the repayment structure – whether you’re looking at fixed-term or variable. Whether you’re a first time buyer, home mover or switcher, there is something that fits all categories. When you have a complete picture of what you can borrow and what your mortgage is going to cost you, you’re then dealing with information that will help you to make a more informed decision.”
When you're looking for a mortgage, you will need to consider how much the deposit is and how much you will need to borrow.
In the mortgage know
Annual Percentage Rate (APR): The total cost of your loan expressed as a rate which shows the yearly cost for the amount borrowed.
Capital: The amount you owe excluding costs and interests.
Drawdown: Once all conditions of the mortgage have been fulfilled, the bank will ‘draw down’ the loan funds and send them to your solicitor to complete the property purchase.
Equity: The difference between the value of your home and your outstanding mortgage debt. Home equity is essentially the amount of ownership that has been built up by the mortgage holder through payments and appreciation.
Interest rate: The percentage of the amount charged by a lender to a borrower for the use of assets.
Loan to Value (LTV): This expresses the value of the mortgage that the homebuyer takes out as a percentage of the value of the property being purchased and is an important measure for lenders in assessing applications.
Term: The length of time over which you pay your mortgage.
Maturity date: This is the last day of your mortgage agreement – the day your loan must be paid in full or the agreement renewed.
How well do you know your mortgage jargon?
We take to the streets to see how clued in you are with mortgage terms...
Grace O’Sullivan, Cork
“I’m pretty sure a fixed rate is when you pay off the same amount of money over a fixed period of time and a variable rate is when you can pay off large amounts sometimes and a little amount other times, so the rate of it changes!”
Yvonne Ryan, Dublin
“FTB is a Fixed Term… No, it’s First Time Buyer!
“The interest rate is how much you have to pay back per year or per month. It’s the cost of borrowing money, isn’t it? The percentage of what you have to pay back.”
Bernard Murphy, Dublin
“AIP – that’s the Approval [in Principle]. You show your bank documents, such as your P60, and they’ll give you an indication of whether you can borrow up to a certain amount of money.”
Visit KBC’s National Mortgage Lounge!
On Thursday 10th March 2016 at 6pm, KBC will host its very first National Mortgage Event at The Mansion House, Dawson Street, Dublin. You can expect a helpful and informative evening on the various steps required to take out a mortgage and buying your own home, plus you will get the chance to speak to industry experts and KBC mortgage advisors. Prepare all your questions in advance as this is an event first time buyers and movers don’t want to miss!
To register, email firstname.lastname@example.org
For more information, visit www.kbc.ie. For advice on the first time buying process, customers can call 1800 51 52 53