First Time Buyers Donegal

The Best Journey Always Takes Us Home

first-time-buyers-mortgage-advice-donegalFirst Time Buyers Mortgages – How much do you need?

You will need to have savings of at least 10% of the agreed house price as a deposit. Buyers of their second home require 20%. Buying a one bed apartment will require a bigger deposit of probably 20% or more in most major cities in Ireland.
The Help to Buy scheme allows you claim up to €30,000 back from tax paid by you in Ireland over the previous 4 years. The amount cannot be more than 10% of the cost of the house. Claiming back €30,000 on a house purchase of say €300,000 would be a big help, especially if you have savings of a further €30,000.

Related Costs for First Time Buyers

Separately you will need funds to cover things like stamp duty of one or two percent and your own legal fees which will vary from about €2000 up to €5000. You may need to pay for a survey or a report by an engineer. And apart from all that you will need funds for setting up utilities such as broadband and electricity, TV and house insurance, waste disposal and redecorating, moving or buying furniture, local property tax and registration fees for land registry.

First Time Buyers Checklist

As a first time buyer you will typically follow this path.
Start saving as soon as possible, then determine how much you can afford to invest. As a rule of thumb, if you have a deposit saved of €50,000 then you can get a mortgage of €450,000 if your income is sufficient. That makes your budget €500,000. Then talk to an independent mortgage adviser to ensure you are looking at the right end of the market. How much can you invest, how much of a mortgage will you get, what paperwork will be required.
The Mortgage adviser should ensure that you take it one step at a time. Then you can start house hunting, in the knowledge that you know how much you can invest, including all related fees. Talk to a solicitor to agree fees roughly, so that you are ready to move quickly.
As soon as you do make an offer, you will want to negotiate, then agree a final price, so that you can get final mortgage approval, to close the deal, before you exchange contracts. Then you can do any renovations or redecorating that is required, before you organise the first house party, if you have it in the budget.

So, what is a Mortgage?

A mortgage is a loan required to finance the purchase of a property. A mortgage allows individuals to buy a property now and pay for it over a number of years.
When you are obtaining a mortgage, you will need to put down a deposit. The amount of this deposit will depend on whether you are a first-time buyer or non-first-time buyer. It will also depend on the lender’s criteria for the amount they will lend compared to the value of the property. The mortgage amount will be the purchase price of the home, less the amount of your deposit (which can be made up of savings and any financial gifts from e.g., parents). Regular payments must be made over the term of the mortgage to repay the mortgage loan. These payments are usually made monthly.

Fact File: The larger the deposit that you can put down, the less money you will have to borrow, meaning the less interest you will have to pay over the term of the mortgage

Buying a home

Before deciding on if buying is the best option for you, you should review your budget to find out how much you can afford in monthly mortgage repayments. The CCPC has a budget planner that you can use to see how much you can afford each month.
In general, properties are purchased and sold either by: Private treaty or public auction.

A private treaty sale is where the property is not put into an auction. You can contact the seller or the seller’s agent, usually an estate agent, to agree a purchase price.
Auctions are usually advertised in a local newspaper, estate agent or by a sign on the property.
There are lots of issues with buying a house at auction using a mortgage, so it is important that you seek advice from trusted advisor
A good mortgage advisor will be able to explain the choices available to you in simple language allowing you to make an informed decision.

Fact File: You can get mortgage approval in principle before you start to look for a property. This lets you know how much you have to spend. Most estate agents will request proof of funds before your offer will be put to the vendor.

Mortgage Protection Insurance

When taking out a mortgage, you need to consider how it will be paid off in the event of your death. You may also consider how to continue repayments if your income falls, due to illness, unemployment, or other reasons. When you get a mortgage to buy your home, you will generally be required to take out mortgage protection insurance.

This is a particular type of life assurance taken out for the term of the mortgage and designed to pay it off on the death of the borrower or joint borrower.
There is also another type of Mortgage Protection insurance called Mortgage Repayment Protection insurance. This insurance is usually optional. It is a type of payment protection insurance that is designed to repay your mortgage for a certain amount of time. It is important to review your mortgage protection policy regularly which can be done through your trusted advisor.

Fact File: You can get mortgage approval in principle before you start to look for a property. This lets you know how much you have to spend. Most estate agents will request proof of funds before your offer will be put to the vendor.

Mortgage Protection Insurance

When taking out a mortgage, you need to consider how it will be paid off in the event of your death. You may also consider how to continue repayments if your income falls, due to illness, unemployment, or other reasons. When you get a mortgage to buy your home, you will generally be required to take out mortgage protection insurance.

This is a particular type of life assurance taken out for the term of the mortgage and designed to pay it off on the death of the borrower or joint borrower.
There is also another type of Mortgage Protection insurance called Mortgage Repayment Protection insurance. This insurance is usually optional. It is a type of payment protection insurance that is designed to repay your mortgage for a certain amount of time. It is important to review your mortgage protection policy regularly which can be done through your trusted advisor.

Fact File: In most cases, the lender is legally required under Section 126 of the Consumer Credit Act 1995 to make sure that you have mortgage protection insurance before giving you a mortgage. You can shop the market for this insurance, you do not have to take out with you lender, in  most cased we would recommend that you don’t take it with your lender.

The Reliefs that are available

Help to Buy (HTB) Incentive:
As a first-time buyer, this incentive will help you towards the deposit you need to buy or build a new home. The incentive gives you a refund of the income tax and Deposit Interest Retention Tax (DIRT) you paid over the previous four tax years. The incentive applies if you buy, or self-build a new residential property as your main home.

First-Time Buyers (FTB) Relief: You pay DIRT on interest you receive on your savings in financial institutions such as banks and building societies. If you are a first-time buyer that buys or self builds a property to live in, you may be able to claim a DIRT refund. The FTB is relief applied to homes bought or self-built between 14 October 2014 and 31 December 2017.

Why use a Mortgage Brokers like Advice First Financial?

Clear. Concise. Professional.
Advice First are trusted experts for Mortgage Advice and Financial Planning matters and work on your behalf giving you a choice of products and providers from across the market. We will work with you to understand your mortgage & financial goals and helps you create a plan to meet your personal finance objectives.
Our services can include Mortgage Advice, personal financial planning, life cover, serious illness cover, income protection, savings, investments, pensions, retirement planning, business financial planning, inheritance tax planning, mortgages.

We will be able to explain the choices available to you as a first-time buyer in simple language allowing you to make an informed decision.

What you should know for your mortgage application

  • If you haven’t yet found a property, you can get an approval in principle, you should think about:
    • The area in which you want to buy
    • Your desired price range or the price range in that area.
  • If you’ve found a property you wantto buy
    • The exact correct address of the property, including the Eircode.
    • The agreed price of the property
  • Your income

Your annual base income. Some lenders may also take into account a portion of any irregular income such as bonuses and overtime payments or sources of additional income. Some lenders may take an additional part time income into consideration as well.

  • Outgoings and Spending

What you typically spend each month including rent/mortgage payments, groceries, bills, clothing, travel, entertainment, childcare, loan/credit card repayments. Take account of major irregular expenses such as house/motor/health insurance or holiday expenses.

  • Savings

The amount of savings that you have and any regular savings commitments that you have. Savings are important to pay for a deposit and additional expenses, including legal costs, involved in buying a property.
Lenders will also take into account whether applicants can show the ability to manage money and save.

  • Outstanding loans

Any outstanding loans including overdraft balances, personal/motor loans, hire purchase agreements, credit union loans, point-of-sale credit agreements and credit card balances.
The more borrowing you have, the less additional borrowing, in the form of a mortgage, you will be able to take on.

  • How much you need to borrow

The difference between the price you will pay for the property and the amount you will put towards the house yourself. This will depend on the savings and other funds you have available to pay for the deposit. You will need to factor in other expenses such as solicitor’s fees and a valuation/surveyor report into the purchase price.

  • Repayment term

The period in years over which you plan to repay the mortgage. The shortly the repayment term the higher the monthly repayments will be and vice versa

Checklist of items needed for a mortgage Application

When applying for a mortgage the following may be needed for all applicants.
This list is for guidance only and different lenders may not require everything in this list

  • Photographic ID (originals or certified copies)
  • Address verification
  • Proof of PPSN
  • Most recent 6 months’ bank account statements (for all bank accounts)
  • Most recent 6 months’ online bank account statements (i.e. Revolut)
  • Most recent 6 months’ savings account statements (if applicable)
  • Most recent 6 months’ credit union statement (if applicable)
  • Last 6 months’ credit card statements (if applicable)
  • 12 months’ statement on all loans if applicable
  • Most recent mortgage statement for all mortgages (if any)
  • Foreign Credit History Report, English version, (if living in, have a loan or bank account in any country outside Ireland)
  • Gift letter (if getting a gift for the deposit)
  • Copy of your Marriage Cert (if applicable)
  • Copy of your Divorce or Separation agreement (if applicable)

If you are an Employee, paying income tax under PAYE

  • Up to 2 months’ recent pay slips
  • Most recent Employment Detail Summary
  • Salary Cert completed by your employer

If you are Self Employed or Director
If you own more than a 25% shareholder of a LTD company, lenders will class you are self-employed even though you are being taxed under PAYE.

  • 3 years’ accounts
  • 3 years’ revenue notice of assessments/ chapter 4
  • 3 years’ form 11
  • Confirmation of Tax Clearance cert
  • Most recent 6 months’ business bank account statements (for all bank accounts)
  • 12 months’ statement on all business loans

If you are self-building

  • Breakdown of build costs (Your lender will provide the template)
  • Copy of architects’ PI cover
  • Copy of planning permission
  • Copy of plans
  • Copy of ordinance survey/ site map
  • Gift letter if site was gifted (template available from your lender)

Fact File: The above list is for guidance only and does not constate a completed list. Lenders may require more or less information than listed above. If you are borrowing from the lender you bank with you will not have provide bank accounts etc.

What a lender needs to know

Lenders assess mortgage applications in different ways. The lender will take into account the information you provided to assess how much you can afford to borrow and whether or not you will be able to meet the mortgage repayments.

In making a decision, the lender must comply with the Central Bank of Ireland rules which apply limits to mortgage lending in the Irish market. These limits apply to loan to value and loan to income measurements and are reviewed every year.

In making its decision, the lender will also look at other issues:

  • Your age – how old you are and when you will retire may affect the repayment term most appropriate to your situation.
  • Your credit record – your history of loan repayments may affect the lender’s assessment of your ability to meet repayments in the future.

Help to Buy (HTB) scheme

The Help to Buy (HTB) scheme is an incentive for first-time property purchasers. It will help you with the deposit you need to purchase or self-build a new house or apartment. You must purchase or self-build the property to live in as your home.

Where you meet the required conditions, you will receive a refund of:

  • Irish Income Tax

And

  • Deposit Interest Retention Tax (DIRT) you paid in Ireland.

The refund will be from the four tax years prior to when you make your application. The refund will not include any refunds you have already claimed.

Who can claim HTB?

To claim HTB, you must:

  • be a first-time purchaser at the time of the claim
  • purchase, or self-build, a qualifying property between 1 January 2017 and 31 December 2022
  • live in the property as your main home for five years after you purchase or self-build it
  • be tax compliant. If you are self-assessed, you must also have tax clearance
  • take out a mortgage on the property with a qualifying lender.

The mortgage must be at leas

  • 70% of the: purchase value of the property

Or

  • approved valuation, in the case of a self-build.

To qualify, you must not have previously purchased or built a house or apartment, either on your own or jointly with any other person. If you are purchasing or self-building the new property with other people, all of them must be first-time purchasers. If you have inherited, or have been gifted, a property, depending on the circumstances, it may not affect your eligibility.

If you are purchasing the property, you must have signed a contract to purchase that property to get payment.
If you are self-building, you must have drawn down the first part of the mortgage to get payment.

Approved developers and contractors

The contractor you are purchasing your home from must be approved by Revenue. You can check the list of approved developers and contractors to ensure that your developer or contractor is approved.

If you are self-building, you do not need to use a Revenue approved contractor. You can use direct labour. However, you will require a solicitor (registered with Revenue as a ‘HTB approver’) to verify your HTB claim.

A qualifying property?

To qualify for HTB, the property that you purchase, or self-build must be:

The property must never have been used, or have been suitable for use, as a residential home. If the property was non-residential, but has been converted for residential use, it may qualify for HTB.

If you purchase or self-build the property as an investment, it does not qualify for HTB.

  • Purchase value

The purchase value of a new build means the price you purchased it for. The value of the property must be €500,000 or less to qualify for HTB.

  • Approved valuation

If you are self-building a property, the approved valuation is the valuation of the property approved by the lender at the time you took out the mortgage. The approved valuation must be €500,000 or less to qualify for HTB.

  • Mortgage

You must take out your mortgage on the property. This loan must only be used for purchasing, or self-building, the property. The loan must be at least:

  • 70% of the purchase value

Or

  • 70% of the approved valuation. For a self-build the approved value will on the completed property, the market value, which also takes account of the site value.

This is known as the loan to value ratio.

You are allowed to have a guarantor on the loan. The guarantor does not need to be a first-time purchaser. Please Note: Most lenders currently will not allow a guarantor on the mortgage.

How much can you claim?

An enhanced HTB scheme was introduced in 2020 as part of the Government’s July Jobs Stimulus Plan.

You are eligible for increased relief under the enhanced HTB scheme if, during the period from 23 July 2020 to 31 December 2022, when you:

  • sign a contract for the purchase of a qualifying property
    or
  • make the first draw down of the mortgage, in the case of a self-build qualifying property.

The original HTB scheme applies from 1 January 2017 to 22 July 2020.

Amount of relief under the enhanced HTB scheme

The amount that you can claim is the lesser of:

  • €30,000
  • 10% of the purchase value of a new home or of the approved valuation of the property, in the case of self-builds
  • the amount of Income Tax (IT) and Deposit Interest Retention Tax (DIRT) you have paid for the four years prior to your application.

The maximum payment is €30,000 per qualifying property under the enhanced relief. This cap applies regardless of how many people enter into a contract to purchase the qualifying property.

Universal Social Charge (USC) or Pay Related Social Insurance (PRSI) are not taken into account when calculating how much you can claim.

Amount of relief under the original HTB scheme

The amount that you can claim is the lesser of:

  • €20,000
  • 5% of the purchase value or approved valuation
  • the amount of Income Tax and DIRT you have paid for the four years prior to when you make your application.

The maximum payment is €20,000. This cap applies regardless of how many people enter a contract to purchase the qualifying property.

USC or PRSI are not taken into account when calculating how much you can claim.

How will the refund be paid?

If you purchase a qualifying property, the refund will be paid to the qualifying contractor.

If you self-build the qualifying property, the refund will be paid to a bank account you hold with your loan provider, following the first stage payment.

What is needed before you apply?

Before you apply, you must be registered for either:

If you are employee pay tax through PAYE

Before you apply for HTB, you must submit an Income Tax (IT) Return for each year you wish to select as a refund year. A refund year must be within the four years prior to when you make the application. Any outstanding tax due for the selected refund years must be paid in full prior to submitting your claim.

If you were registered for another tax in any part of the refund years you are applying for, you must have a Tax Clearance Certificate (TCC).

Use myAccount to submit an IT Return for the relevant years. Online Income Tax returns are pre-populated with your pay and tax details.

You should not make your HTB application until:

  • you have submitted an Income Tax Return for each year you want to select as a refund year
  • you have received a Statement of Liability for all years for which you submitted an Income Tax Return
  • there is no outstanding tax due in any refund year
  • you have received your Tax Clearance Cert, if applicable.

Failure to do this could result in delays to your application.

If you are Self Employed and are self-assessed for Tax

If you are self-assessed, you must be fully tax compliant and have tax clearance. You must have filed your Income Tax returns and paid all the tax that you owe for all years when you were self-assessed. Use ROS to submit your IT Return (Form 11). Obviously, if you have an accountant, they can do your claim for you.

Selecting years for refund

The refund of IT and Deposit Interest Retention Tax (DIRT) is based on the four years immediately prior to the year of application, starting with the earliest year.
In order to select a year in your HTB application, you must:

  • have submitted your annual Income Tax Return for that year

and

  • have received:
    • your Statement of Liability from Revenue for that year, if you are a PAYE taxpayer. The Statement of Liabilities is not issued until after your return has been submitted.
    • a Letter of Acknowledgement of your self-assessment, if you are a self-assessed taxpayer.

How to apply for HTB?

There are three stages to the online process:

  1. Application stage
  2. Claim stage
  3. Verification stage.

1: Application stage

Before starting your application, please ensure you are tax compliant. You can apply as:

  • an individual
  • part of a group.

Use myAccount or Revenue Online Service (ROS) to apply. Complete the declaration and select the years you wish to use for a refund.
If you are tax compliant, your application will be approved, and you will be given:

  • an Application Number
  • a summary of the maximum amount you can claim
  • an Access Code (sent through MyEnquiries).

Keep a safe note of these numbers, you may need to provide them to your:

  • lender
  • contractor or solicitor at the verification stage.

Please Note
Even if your application is approved, all conditions of the Help to Buy (HTB) scheme must be satisfied for the claim to be approved.

A valid claim must be submitted before the application expires, otherwise your application will have to be resubmitted. Applications made between:

  • 1 January and 30 September automatically expire on 31 December of the same year
  • 1 October and 31 December automatically expire on 31 March of the following year.

Lenders and contractors can use Revenue’s Mortgage Query Tool to check your potential maximum HTB refund.

2: Claim stage

You can make your claim using revenue websites ROS for the self-employed  or MyAccount if you are an employee, once your application is approved, and all other conditions are satisfied.

Step 1

Upload evidence of your mortgage and, if you are:

  • purchasing a new property, upload a copy of the contract, signed and dated by the vendor and all purchasers
  • self-building, upload:
    • proof of the draw down of the first part of the mortgage

and

  • a copy of the valuation report from your lender.

Step 2

You need to confirm details about the:

  • property
  • purchase value (if you are purchasing a property) or approved valuation (if you are self-building)
  • date of completion
  • mortgage
  • amount of deposit already paid.

If you are applying with other people, you will also need to confirm the portion of the refund due to each person.
If you are self-building, you will need to provide the BIC and IBAN of the relevant bank account held with your mortgage provider.

Once you have submitted your claim, you will be provided with a Claim Number.

If you enter incorrect information during your application or claim, you must cancel it. You can then submit a new application or claim before continuing to the next stage.

3: Verification stage

Before you receive any refund, the information you have provided will need to be verified by the:

  • Qualifying contractor, if you are purchasing a property
  • Your solicitor, if you are self-building.

When you have submitted your claim, advise your eligible verifier and provide them with your:

  • Claim Number (issued after the claim stage)

And

  • Access Code (issued when your application was approved).

The refund that you receive is limited to 10% (5% under the original HTB scheme) of the:

  • purchase value
  • or
  • approved valuation.

This may mean that it is different to the maximum relief amount advised at the application stage.

 

Can Revenue claw back a refund?

Revenue can claw back refunds if you:

  • were not entitled to the refund
  • do not live in the property for a minimum of five years
  • did not finish the process to purchase the property
  • did not finish building the property.

Revenue can claw back refunds from the contractor if:

  • the property is not purchased by you within two years from when the refund was made to the contractor
  • Revenue has reasonable grounds to believe that the property will not be purchased by you within that two-year period.

There is some flexibility around the two-year period. This can apply if Revenue is satisfied that the property is either:

  • almost complete at the end of the two years
  • likely to be completed within a reasonable time period.

Once the property is completed and purchased by you, you are solely responsible for meeting the conditions for the Help to Buy refund. The developer is no longer responsible after this point.

Still Unsure?

Why not take advantage of our First Time Buyers Mortgage Review, which will give you a professional assessment on how ‘Mortgage Ready’ you are now.

What some of our happy First Time Buyers customers have to say…

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Pascal and team were very helpful when we were buying our home. We had a couple of issues with the sale and the team helped push along the sale. Pascal was very knowledgeable and it was a pleasure working with him. Definitely would recommend him to anyone looking for a mortgage.

5
Peter Kelly
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I have to say my experience of working with Pascal was second to none. When looking for my mortgage ,which was a bit complicated Pascal worked very hard and put me in the right direction to solve the situation. He was very professional in all aspects of his work and I can recommend him as a financial advisor.

5
Annie Gallagher
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I Was referred to Pascal as we wanted to switch mortgages. Although we were aware of what was involved, there were tips and advice Pascal gave us that was invaluable. He advised and directed us and offered his services but felt we were capable of completing the switch ourselves. The best money we’ve ever spent.

5
Grainne Sheils
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Pascal and his team are brilliant. They guided us through our mortgage application every step of the way. Very responsive, knowledgeable and friendly service. Would highly recommend.

5
Paul Tully
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We have been dealing with Pascal at Advice First since 2005. He has helped us so much through the years with our mortgage, Life Insurance, Income Protection and financial guidance. Pascal is so kind and explains everything so well. His attention to detail is second to none and always on hand if we need advice. I would highly recommend Advice First Financial Services.

5
Caroline & Gary McLaughlin

Frequently Asked Questions About First Time Buyers

What exactly is a mortgage?

A mortgage is simply a long-term loan that’s used to pay for a house.

How do I start the application process?

There are a number of easy ways to begin your application:
Get in touch with a mortgage broker, who will do all the work for you or get in touch with the lenders directly. Obviously, we would recommend the mortgage broker route as they will shop around all the lender and provide you with the best options for you. I would suggest dealing with a fee-based broker though. If the broker is not charging a fee, then they will only deal with lender who pay them a commission, which means you only get options from a select number of lenders rather than the entire market.

Here are some tips on getting mortgage ready

What’s a fixed rate mortgage?

With a fixed rate mortgage, your interest rate and monthly repayments are fixed for a set time as agreed between you and the lender. You can choose the best time frame for you.

Although a fixed rate means your repayments cannot increase for a set period of time, your repayments will not fall during the fixed rate period. As a result, you could miss out on lower interest rates and lower repayments. Fixed rates may cost more over the long run, but they offer peace of mind as you know your repayments will not rise during the fixed rate period.

We would recommend speaking with a mortgage broker though, you can discuss all rate options and they will help you decided whether a variable rate fixed rate is right for you. They will also be able to do market research for you on the best rates available for you.

What’s a variable rate mortgage?

Variable rates offer the most flexibility. They allow you to increase your repayments, use a lump sum to pay off all or part of your mortgage or re-mortgage without having to pay any fixed rate breakage fees.

However, because variable rates can rise and fall, your mortgage repayments can go up or down during the term of your loan.

How much will my repayments be every month?

Your repayments will depend on how much you borrow, the term or length of your mortgage as well as the interest rate that you’re charged. See this handy online Mortgage Calculator for an indication of how much your monthly repayments might be. We would recommend speaking with a mortgage broker though, you can discuss all rate options and they will help you decided whether a variable rate fixed rate is right for you. They will also be able to do market research for you on the best rates available for you.

What’s the minimum amount I can borrow?

The minimum loan amount you can borrow for a mortgage approx. €40,000. The minimum loan amount for a top-up, can also be called a further advance, is €25,000.

What’s the maximum amount I can borrow?

When giving you a mortgage, lenders use different criteria to decide how much they are willing to lend you and they must follow specific Central Bank of Ireland rules when doing this.

The Central Bank of Ireland’s rules apply limits to the amount that lenders in the Irish market can lend to mortgage applicants. These limits apply loan-to-income (LTI) ratios and the loan-to-value (LTV) ratios for both family homes and buy-to-let properties and are in addition to the lenders’ individual credit policies and conditions. For example, a lender may have a limit to the percentage of your take home pay that can be used for mortgage repayments.

How long will my mortgage last for?

Every mortgage has a life span or term. The minimum term would be 5 years and you could also possibly qualify for the maximum term possible which is 35 years. For a family home the maximum term of the mortgage is determined by your age. The maximum to have the loan repaid is age 68 with some lenders and age 70 with others. For Buy to Let mortgages have a maximum term of 25 years.

A shorter term means you’ll pay your mortgage off quicker, but it also means your monthly repayments will be higher. It is good advice to clear your debts, including your mortgage, as quickly as you can, it is also important to have a life and have to money to do all the other things in life that are important. So, striking the right balance is very important.

What documents do I need to make a mortgage application?

You will need certain documents when you apply for a mortgage, and you should keep a copy of anything you give to a lender or broker.

Proof of ID, proof of address and proof of your Personal Public Service Number (PPSN)

Proof of income: latest P60, payslips, certified accounts if self-employed

Evidence of how you manage your money such as current and loan account statements for the last three to 12 months, depending on the lender

Her is Permanent TSB’s full list of documents required here.
Her is AIB’s full list of documents required here.
You can see that the lists are very similar, which is the same with all other lenders.
These lists will not be complete for everybody as they do not take account of your individual circumstances.

What’s a loan-to-value (LTV) ratio?

LTV, or loan-to-value, is all about how much mortgage you have in relation to how much your property is worth. It’s normally a percentage figure that reflects the percentage of your property that is mortgaged, and the amount that is yours (the amount you own is usually called your equity).

For example, if you have a mortgage of €150,000 on a house that’s worth €200,000 you have a loan-to-value of 75% – therefore you have €50,000 as equity.
So, the lenders set LTV limits, which means you need to have a deposit of a certain amount before you can get a mortgage. There are different limits in place depending on what category of buyer you are.

  • First-time buyers need to have at least a 10% deposit
  • Second and subsequent buyers need to have at least a 20% deposit
  • Buy-to-let buyers need to have at least 30% deposit

Lenders have a limited amount of discretion when it comes to these limits and in a calendar, year can make exceptions for:

  • 5% of the value of mortgages for first-time buyers
  • 20% of the value of mortgages to second and subsequent buyers
  • 10% of the value of buy-to-let mortgages

These rules don’t apply to switcher mortgages and housing loans for restructuring mortgages that are in arrears and pre-arrears.

What is the Loan to income limits?

A limit of 3.5 times your gross annual income applies to applications for a mortgage for a family home. This limit also applies to those in negative equity applying for a mortgage for a new property, but not those borrowing for a buy-to-let property.

Lenders have a certain amount of discretion when it comes to mortgage applications. For first-time buyers, 20% of the value of mortgages a lender approves can be above this limit and for second and subsequent buyers 10% of the value of those mortgages can be above this limit.

How much can you afford to borrow?

When making a mortgage application it can be tempting to apply for the maximum amount possible. However, you need to make sure you will be able to cope with future events such as an increase in interest rates, having children, redundancy or illness.

You can use this budget planner to work out what you can afford to repay each month and make sure to include a regular amount for ‘unforeseen expenses’. You can use our mortgage calculator to see how much your monthly mortgage repayments would be.

If you have other loans or debt, your lender may offer you a lower amount, ask that you pay off these loans or refuse your application.

The shorter the term of your mortgage, the higher your monthly repayments, but you will pay less interest in total. With a longer-term mortgage your monthly repayments will be lower, but you will pay more in interest over the lifetime of the loan.

Example:

MORTGAGE AMOUNTTERMINTEREST RATEMONTHLY REPAYMENTSTOTAL COST OF CREDIT
€200,00020 years3%€1,109€66,206
€200,00025 years3%€948€84,526
€200,00030 years3%€843€103,554
Difference in cost of credit between 20- and 30-year terms€37,348

Even a small difference in interest rates can have a big impact on the overall cost of a mortgage.

MORTGAGE AMOUNTTERMINTEREST RATEMONTHLY REPAYMENTSTOTAL COST OF CREDIT
€200,00020 years3%€1,109€66,206
€200,00020 years2.5%€1,059€54,353
Difference in cost of credit between interest rates€11,853

Example:
When you apply for your mortgage, and over its lifetime, it is important to get the lowest rate possible as it can lead to significant savings.

As well as mortgage repayments there are other costs to consider when it comes to buying a home

What are the other Mortgage fees and charges?

When buying a property, or switching your mortgage, it is not just your regular mortgage repayments you need to think about. There are a number of other costs involved which you should be aware of and ask your lender about. Some of these can be reduced or avoided by shopping around.

They include:

  • Brokers’ fees – some brokers charge a fee to arrange your mortgage or for mortgage advice. This might be a percentage of the mortgage amount or a flat fee. Not all brokers charge a fee so if you are planning to use a broker it is important to ask about this and to shop around. If a broker is not charging a fee, check with them what lenders they advise on. They may only work with lenders who pay them commission and you may not get a full market comparison.
  • Estate agent fees – if you are selling a property and using an estate agent you will have to pay a fee for this service. It is usually between 1% and 2.5% but can also be a flat rate.
  • Solicitor’s fees – to look after the legal aspects of your mortgage a solicitor will charge a flat fee or a percentage of the mortgage amount, typically 1% to 2%. It is worth shopping around a few solicitors.
  • Valuation fee – this is paid to a professional valuer to estimate a property’s market value and is required by the lender as part of your mortgage application. A valuation is valid for a short period of time, typically four months. You will need to get an up-to-date valuation of your property if you want to switch mortgage. Valuation fees typically run between €150 and €185.
  • Structural survey fee – a structural survey is done to find out the condition of a property. If any issues arose during the valuation of the property or it is very old, your lender may insist on a structural survey. Even if your lender does not require it, you may want to get a survey anyway to be sure there are no problems with the building. The amount you will pay can be dependent on the type, age and location of the property. It is not always a requirement for the lender, but it is always recommended to have a structural survey done for your own peace of mind.
  • Stamp duty – this is a tax payable on documents when you transfer ownership of a property. For residential property it is charged at 1% of the property value up to €1 million and 2% for anything above that.
  • Local Property Tax – this tax, collected by Revenue, is charged on all residential properties and came into effect in 2013. It is a self-assessment tax, and you calculate what is due based on your own assessment of the market value of your property. It can be paid in a lump sum or spread out over the year.

You should take the above into account when you are working out how much you will be able to borrow.

What is the stamp duty payable on mortgages?

Stamp duty is payable at 1% on properties up to the value of €1 million euro and 2% on properties over this amount.

What are lenders' normal lending criteria for a mortgage?

Every lender will look at various criteria before deciding whether to approve a mortgage. Some of the main factors that are taken into account are:

  • A good credit history.
  • Being aged 18 or over.
  • Age not greater than 70 at the end of the mortgage term. With some lender this age is 68.
  • Ability to repay – as a guide mortgage repayment on all loans including your mortgage should not exceed 35% of your net income
  • Secure employment.
  • Continuous employment at least 12years.
  • Self-employment for at least 2 years, some lenders require 3 years.
  • Good bank account management

With all lenders the primary focus is on your repayment capacity.

How much of a deposit do I need?

All lenders must follow Central bank deposit rules, which require a 10% deposit for first time buyers. So, if the value of your property is €200,000, you’d need a deposit of €20,000. This deposit can come by way of a gift, or part gifted, if you are lucky enough to have some-one willing and able to help you out. Borrowing for your deposit will not be acceptable to your mortgage lender, no matter where you are borrowing for.

What else should I bear in mind when taking out a mortgage?

You’ll generally need to arrange home insurance and mortgage protection before drawing down your loan.

Home insurance is a property insurance which covers private homes, buildings and contents. The cost of home insurance often depends on what it would cost to rebuild your house and how much it would cost to replace all of the contents of the house. The replace value of your property may be more than the purchase price.

When taking out a mortgage you’ll also need to consider how it’ll be paid off in the unlikely event of your death before the mortgage has been fully repaid. When you get a mortgage to buy your home, you’ll generally be required by your lender to take out mortgage protection. This is a particular type of life assurance taken out for the term of the mortgage and is designed to pay it off on the death of the borrower or joint borrower before the end of the mortgage term.

What is the timeline for the mortgage process?

Wherever you are on your mortgage journey, whether you’re ready to make an application, or just want to ask some questions – we’re here to support you so book an appointment today with our mortgage team!

We’ll outline the mortgage process and the required documents you’ll need for your application and you can then gather and submit the documents required at a time that suits you, allow 1-2 weeks for gathering these documents.

Once the lender receives your application and supporting documentation, they will get back to you in 3 working days to let you know if it’s ready to go to our underwriting team for a full assessment, or if they need any further documents or information from you first.

Once they submit the documents to their underwriting team for full assessment, they will let you know if they can approve your application within 10 working days. In the rare event that they can’t come to a decision in that timeframe, they will be in touch to let you know and to inform you of when they will have a decision.
If you are using a mortgage broker the lenders will communicate this update to them who will in turn communicate with you.

Once your application for credit is approved, (called approval in principle, AIP) and you have found your home, you will be required to arrange for a valuation of your property. A credit check will also be undertaken on all applicants of the mortgage, and you will need to arrange Life Insurance and Home Insurance. Your lender will issue the loan offer to your solicitor and once you sign the documents, your solicitor will arrange the transfer of funds and collection of your keys to your new home.

Call us today in Letterkenny: 074 910 3938