Red flags and hidden costs: Need-to-know tips for the first-time buyer applying for a mortgage
Are you trying to save in the hope of securing a mortgage - but confused about what lies ahead?
In the year to date, mortgage approvals for first-time buyers are up 43pc year-on-year, but this doesn't mean it's an easy process.
Independent.ie spoke to the experts about what first-time buyers should be looking for:
What is the main thing to note when you’re shopping for a mortgage?
Managing Director at Bluewater Financial Planning Steven Barrett said the first thing a first-time buyer should look at is the interest rate that lenders are offering.
"It is so hard to get a mortgage these days, there are no myths really, it is actually a very difficult process," Steven told Independent.ie.
"The interest rate is the big thing to look out for, how much you’re going to repay.
"First-time buyers tend to look for the longer term which is better so you can borrow more money to get started. If you’re looking for the longest term, you’re looking to keep down repayments.
"This is new for people to hear, they’re not taught these things about finance or mortgages in school or college."
Independent financial advisor with 52Financial Ross Connolly said he would advise speaking to a mortgage broker.
"Obviously I'm biased but the benefits of having a broker are; we do the shopping around for the client, we build a file which would be neutral and throughout the process we think of which bank we think would be most suitable for the client," he said.
What are the red flags banks look for when you’re applying for a mortgage?
"Overdrafts that are not organised or arranged with any bank are also a big no-no," Ross Connolly said.
"We stay away from overdrafts. You don't want to paint a picture of someone who is living from pay cheque to pay cheque. You don't want to be seen to be gambling or any excessive spending. We would cut that down. The accounts need to be clean."
He said that they advise customers to do an Irish Credit Bureau check on themselves online at www.icb.ie to make sure they haven't missed any old credit card bills or supermarket clubcards they didn't realise they had signed up for.
"The aim is to catch any missed payments at all," Ross added, "just so you have any questions answered before the bank has to ask them."
Steven Barrett of Bluewater Financial Planning said the first thing a bank will do is look at someone's credit rating.
“I’d always advise people to get a copy of their own records so they know what they have, it is the first thing a bank will do," he said.
"My advice to first-time buyers is to make sure the minimum credit card payments are paid off each month because that will affect your credit card rating and make it more difficult to get a loan.
“Missed payments on your direct debts are a big no-no as well. Banks do go through statements line by line. These days, people do spend a lot with their debit card, so your whole lifestyle is showing up on bank statements. If you miss payments, the bank will say, ‘well this person isn’t paying their bills and it is a red flag’.
“You can get declined for repeated missed payments,” Steven added.
What if I have savings or debt in other accounts, like a Credit Union account?
There is no problem having savings in a different account, you can bank and save whatever and wherever you want, mortgage specialist with Mortgage Negotiators Shane Connole advised.
"You can bank and save wherever you want, and you can walk in to get a mortgage wherever you want. Just because you bank with Bank of Ireland doesn't mean you can't shop for a mortgage with KBC," he said.
"The debt on the other hand, you can have your loans wherever you want but this may have a negative impact on your loan approval.
"The debt will absolutely contribute to your credit rating, but it can also have an effect on how much you're borrowing."
Is it true online gambling accounts are a 'no-no' when applying for a mortgage?
The short answer is yes. Steven Barrett of Bluewater Financial Planning describes online betting accounts as a “big no-no”.
“It’s a big no-no if you’re using Paddy Power and other gambling websites on a regular basis.
“When people gamble regularly, they tend to leave the money in the online account if they win and this only goes one way. If they can see that you’re a regular gambler, they will refuse a loan.”
If I’m renting, will the bank take it into consideration for a credit rating?
Banks will take your monthly spend on rent into account for your repayment capacity, Ross Connolly advised.
"When it comes to the savings aspect, the repayment capacity would be the correct label to put on it.
"A couple paying €1,000 a month in rent need to know that this €1,000 will go towards their repayment capacity for a €1,200 a month mortgage, it will be considered savings for want of a better word.
"If you can get a car loan cleared coming up to the application, this can also be considered as repayment capacity."
Can I get a financial gift from a relative?
Mortgage specialist with Mortgage Negotiators Shane Connole said the simple answer is "yes".
"There are no rules around it," he said, "but there are areas to watch out for. No bank likes approving mortgages where your own contribution is a 100pc gift. They would expect for a 10pc deposit, that 5pc of the money is your own savings and the other 5pc could be your gift. An example, you're buying a house for €200,000 and need a €20,000 deposit. You will need to show that €10,000 of that is from your own funds."
The second aspect of receiving a gift is to watch out for tax, Shane Connole advised.
"It's better to receive the gift from a relative in a direct bloodline, based on the tax position. If you're getting a gift from an aunt or cousin, the bank will want to know how you will pay the tax and revenue on it.
"Finally, the bank will want to see the gift money in your own account at a certain stage of the process."
Are there any myths or misconceptions you've come across?
"I wouldn't come across a lot of misunderstandings," 52Financial's Ross Connolly said, "but some people don't understand the reason behind the saving.
"The main reason to save is so you can prove you have the repayment capacity when it comes to your mortgage.
"If your mortgage repayment is €1,000 a month, they may look for €1,200 in repayment capacity in case there is an increase in interest rates.
"People nowadays do seem to be more educated about applying for amortgage.
"It is rare that I come across an online betting shop in a bank statement. There is a high level of advice out there," he added.
If I'm buying a doer-upper, can I get any special treatment?
There are a few things to note if you're investing in a doer-upper, mortgage specialist Shane Connole said.
"The key areas are; do you need planning permission, you need invoices for the work you're doing to the property, and you need to ensure the loan you're applying for does not exceed 90pc of the total end value of the property.
"If you buy a house for €200,000 and do €50,000 worth of work, this does not mean the end value of the house if €250,000.
"The rule is it's 60pc of the value of works. So if I buy for €200,000 and I do €50,000 worth of work, the end value of the house would be €230,000.
"A lot of people fall flat on that. Banks cannot lend more than 90pc of the value per completion.
"You will also need invoices and typically you need a registered builder's invoice."
Shane added that there is not a 'scheme' as such in place for those buying doer-uppers, but you can receive the money in stages.
"You get the first part of the loan paid down when buying the house, and then your value of works is split into two payments. You receive one payment when half the work is done on showing an invoice, and you receive the second payment when the works are completed."
So, you’ve saved for your deposit – are there any hidden costs?
As well as your deposit, financial experts advise that you have the money aside to pay for the extra costs which include stamp duty, solicitors’ fees and surveying fees.
“First-time buyers will have to have a 10pc deposit saved, but you will also need to show that you can pay for the associated costs,” Steven Barrett said.
“You could be paying up to €2,000 for a solicitor, and when it comes to conveyancing, it does need to be done properly by a qualified solicitor. Cheapest is not always best.
“You are talking another few hundred euro for a surveyor, and you have to be able to show the bank that you have that in addition to your deposit.”
Any expert tips for the first-time buyer?
Bluewater’s Steven Barrett believes a separate savings account is key to securing a mortgage.
“Having regular savings each month is a big plus, having an account where regular money goes in and you don’t touch it,” Steven said.
“If you’re putting in a thousand euro on a regular basis but then taking money out of it, they’ll just say, ‘well, this person isn’t really saving’, even if it’s just every quarter, they’ll discount it or they’ll average it out.”
He continued; “Regular saving is the key. If mortgage rates go up by 2pc you need to show you can afford the higher repayments. If you’re paying rent, you need to show that you’re also regular saving in an account you don’t touch.
“You need to have control over your finances and try not to have any debt.”