Getting mortgage approval is not quite as simple as saving a deposit, filling out a form, and being handed a couple of hundred thousand euros, thank you very much.
In the last few years lenders have tightened up the criteria for granting mortgages. Of course there is still the paperwork, such as filling out forms and providing bank statements. But what are mortgage lenders really looking for?
Ability to pay back the loan
What all lenders are really looking for is proof that you have the earnings and self discipline to repay your mortgage, not just for the first year but long into the future.
One way to do this is by showing that your record of saving and paying rent, taken together, easily outweigh what you would pay for mortgage, even if interest rates go up.
When you get your loan and move into your new home, rent and savings will not be needed. Your financial firepower can switch to paying your mortgage and you will not have any problem paying it.
Your savings and rent payments taken together should match or exceed the ‘stress tested’ mortgage payment. This is the monthly payment you sign up for initially, with a couple of per cent theoretically added to see if you can still meet your repayments if interest rates rise.
The bottom line is that you should be ready for your mortgage application months in advance of filling in the form.
Here are four key things that lenders look for — and how you can prepare to give them what they want:
Bank statements
You must produce six months’ bank and credit card statements. And these should tell a story — the right type of story — about your financial habits.
Of course, you will have nothing to worry about if you spend as much as a clean-living church-mouse, and save like a demented squirrel in the last days of autumn, but things like payments to online gambling sites or for rounds of pricey mojitos in nightclubs probably will not do you any favours.
Your statements should show not only that you’re a fairly sensible person, but also that you can save and/or pay rent regularly.
There is no need to volunteer for a rent increase, but you should make sure to boost your savings as much as possible if you want to maximise your mortgage.
You should also make sure that both your rent and savings payments are regular and clearly outlined on your bank statements. You would be surprised at how many people still make these payments in cash. By doing this, they miss out on showing their lender how much repayment capacity they have.
Set up a standing order for each, so it will all be spelled out in black and white.
Your loan record
Lenders will need to see statements to show what loans you have and your record of making repayments. If you have a current mortgage and it is not with EBS, for example, you will need six months' recent mortgage statements.
Your lender may also check your credit rating with the Irish Credit Bureau. This is where lenders share information about customers. You can see where you stand by ordering a copy of your credit report online for a cost of €6.
If the credit report is negative, you may be able to insert a note explaining any extenuating circumstances.
Proof of income
If you are a PAYE worker, your lender will need your P60(s ) and/or three consecutive months’ payslips. Your employer may also have to sign off a salary certificate to confirm what you earn and that you are a permanent employee.
If your salary is boosted by bonuses and guaranteed extra income, you will need to show proof of that.
If you have your own business, the lender may want to see three years of audited accounts.
Tax records
PAYE workers’ P60s show their tax situation. However self-employed applicants need an accountant’s confirmation that their tax affairs are in order. They will also need three years of Notice of Assessment statements from the Revenue Commissioners.
If you are ready to apply for a mortgage, contact Martin Leyden at EBS, Hardiman House, Eyre Square, on 091 565431 or call in to the office. EBS Ltd is regulated by the Central Bank of Ireland.
