Monday 11 November 2019

Mortgage applications: avoiding 'red flags'

IF you've been struggling to buy your first home, you might be disheartened by the latest mortgage lending figures.

Banks handed out about 900 less mortgages last year than they did in 2012, according to figures released by the Irish Banking Federation early last week. But don't lose hope – if you are in secure employment, able to show that you can repay a mortgage, and have a strong credit history, your mortgage application should be approved.

That said, many lenders are still adopting an approach of "when in doubt: decline, defer or look for more information". So if you're looking for a mortgage this year, it is imperative that you take the time necessary to ensure your application is perfect.

You must prepare your mortgage CV, changing small but critical financial habits to ensure that your six-month track record will keep your lender on your side.

There are certain "red flags" that banks look out for when going through a mortgage application – and if one or more of these turns up on your application, it could go against you.

Online gambling is one such red flag. As evidence of this can often be seen on bank or credit card statements, it is worth avoiding if you want to better your chances of getting a mortgage.

Having an overdraft will also usually go against you – even if you have got permission from your bank to go into the red. So will referral fees – that is, charges when you go over your overdraft limit. Another red flag is a cash advance on your credit cards – when you use a credit card to get cash.

If you pay rent, be sure there is a paper trail to prove you did so – as this will show your bank that you can afford to honour a financial commitment each month. If you have savings, be able to show that you have built up those savings over time – otherwise, your bank may not believe those savings are yours.

Here are five musts when it comes to applying for a mortgage:

* Your employment must be permanent. In rare circumstances, contracts are considered.

* You must have a savings record. A gift from an immediate family member will be accepted towards a deposit.

* You must provide evidence of your ability to repay the mortgage each month, such as a history of rental payments or monthly savings.

* You must have a good credit history, so clearing any credit card bills or expensive loans at least six months before you apply for a mortgage is a good move.

* You must provide a raft of documentation, including evidence of your income (P60, payslips and a letter from your employer confirming you work there), six months' current account statements, identification (driver's licence or passport and a utility bill), a record of your savings, existing loan statements, and if you are a tenant, proof you pay rent.

If you get mortgage approval, you will also have to provide your bank with evidence that you have bought mortgage protection insurance and home insurance before the house sale is closed. Whilst this may simply appear an exercise in gathering paper, a blip in your documentation may well lead to your application being declined.

Ken Murray is director of the Association of Expert Mortgage Advisors

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